The 5% Deposit Scheme Explained: Buy Your First Home With 5% and No LMI

This article first appeared on awesomelendingsolutions.com.au.

Saving a 20% deposit can take years. While you save, prices can move and rent eats into your budget. That is why the Australian Government 5% Deposit Scheme has become so popular. It lets eligible first home buyers purchase with just a 5% deposit, without paying Lenders Mortgage Insurance (LMI).

Here is how the scheme works in 2026 and what you need to know before you apply.

What is the 5% Deposit Scheme?

The 5% Deposit Scheme used to be called the First Home Guarantee. Under the scheme, the government guarantees part of your loan to the lender. This guarantee covers up to 15% of the property value.

Because the lender is protected, it does not need you to pay LMI, even though you only have a 5% deposit. LMI can cost tens of thousands of dollars, so this is a big saving.

What changed in October 2025?

From 1 October 2025, the scheme was expanded:

• No income caps – your income no longer stops you from using it
• No limit on places – you no longer have to wait for a spot to open
• Higher property price caps – so you can buy in more areas
• Regional scheme merged in – the old Regional First Home Buyer Guarantee was folded into this scheme

These changes made the scheme available to many more buyers. Take-up jumped sharply in the months that followed.

Property price caps

The home you buy must be at or below the price cap for its location. Both the purchase price and the lender's valuation must be under the cap.

Some of the current caps are:

• NSW – $1.5 million in Sydney and regional centres; $800,000 in other areas
• Victoria – $950,000 in Melbourne and regional centres; $650,000 elsewhere
• Queensland – $1 million in Brisbane and regional centres; $700,000 elsewhere

You can check the exact cap for any postcode on the official First Home Buyers website.

Who is eligible?

To use the scheme, you generally need to:

• Be an Australian citizen or permanent resident
• Be at least 18 years old
• Be a first home buyer, or not have owned property in Australia in the past 10 years
• Have at least a 5% deposit from genuine savings or other approved sources
• Plan to live in the home (it cannot be an investment property)

You can apply as a single person or with a partner, friend or family member.

What types of property can you buy?

You have plenty of choice. The scheme covers:

• Existing houses, townhouses and apartments
• New homes and house-and-land packages
• Off-the-plan purchases
• Vacant land with a building contract

An example

Let's say Mia wants to buy a $750,000 unit in Western Sydney.

• 5% deposit: $37,500
• Loan amount: $712,500
• LMI under the scheme: $0

Without the scheme, Mia would likely pay well over $20,000 in LMI, or she would need to keep saving for years. Because the unit is under $800,000, she may also pay no stamp duty under the NSW First Home Buyers Assistance Scheme.

Things to think about

The scheme is a great tool, but it is not free money. Keep these points in mind:

• You still have to pass serviceability. Lenders must check you can afford repayments at your rate plus a 3% buffer.
• A smaller deposit means a bigger loan. You will pay more interest over time.
• Prices can fall. With values falling across most capitals in 2026, buying with a small deposit means less buffer if prices drop.
• You need to use a participating lender. Not every lender offers the scheme.

How to apply

You cannot apply to the government directly. You apply through a participating lender or a mortgage broker who works with participating lenders. The lender checks your eligibility and reserves your guarantee as part of the loan application.

A broker can compare participating lenders, check if your property fits the cap, and make sure you also get any stamp duty or grant benefits you are entitled to.

Frequently asked questions

Is there still an income cap?

No. Since 1 October 2025, there is no income cap for the 5% Deposit Scheme.

Can single parents get a smaller deposit?

Yes. The Family Home Guarantee allows eligible single parents and guardians to buy with a 2% deposit and no LMI. They do not need to be first home buyers.

Can I use the scheme with Help to Buy?

No. You need to choose one or the other. A broker can help you work out which suits you better.

Talk to Awesome Lending Solutions

Every situation is different, and the right loan depends on your goals, income and timing. At Awesome Lending Solutions, we compare a wide panel of lenders and explain your options in plain English, with no pressure. Call us on 02 7904 9560 or visit awesomelendingsolutions.com.au to book a chat.

This article is general information only. It does not consider your objectives, financial situation or needs, and it is not financial, tax or legal advice. Scheme rules, interest rates and laws were current as at October 2026 and can change. Speak with a licensed professional before making any decision. Albert Waldron is a Credit Representative (CR 407514) of AFG's Australian Credit Licence 389087.