First Home Guarantee Helps You Buy Your First Home with Just 5% Deposit and No LMI
Getting into the property market feels impossible right now. You save a few thousand, property prices jump another 50k, and suddenly that deposit goal feels further away than ever.
If you’ve been stuck in this cycle, there’s genuinely good news. The government’s First Home Guarantee just got a major upgrade, and it might be exactly what you need to finally stop renting and start owning.
What Changed with the First Home Guarantee?
From October 1, 2025, the scheme went from being limited in scope and difficult to access to being accessible for most first home buyers. Here’s what’s different:
- No more waitlists. Previously, there were yearly caps. If 10,000 people got in before you, tough luck. That’s gone now.
- Income restrictions removed. You could earn a decent salary in Melbourne and still get knocked back because you were $5k over the threshold. Not anymore.
- Property price caps increased. The old limits were laughable if you were trying to buy anywhere near the city. The new First Home Guarantee caps reflect what homes in Melbourne cost in 2025.
- One national scheme. All those confusing regional variations? Simplified into one straightforward program.
Why This Matters: The LMI Problem
Here’s something most people don’t understand until they’re deep in the home buying process. Lenders’ Mortgage Insurance is expensive, and it doesn’t protect you at all.
When you borrow more than 80% of a property’s value, banks make you pay for insurance that protects them if you default. You’re paying tens of thousands for insurance that only benefits the lender. And because most people don’t have $100,000+ sitting around for a 20% deposit, they get stuck paying it.
What LMI typically costs:
| Loan Amount | LMI Cost (approximate) |
| $400,000 | $8,000 to $12,000 |
| $500,000 | $12,000 to $18,000 |
| $600,000 | $18,000 to $25,000 |
| $700,000+ | $25,000 to $35,000+ |
The First Home Guarantee wipes this cost completely. The government guarantees part of your loan instead, so the lender doesn’t require LMI. That’s real money staying in your pocket.
Who Can Use This?
The eligibility is straightforward, but let me break it down for you:
You need to be:
- An Australian citizen or permanent resident
- Buying your first home (neither you nor your partner can have owned property before)
- Planning to live in the property as your main residence
- Able to save at least 5% of the property valuation
You also need to:
- Meet normal lending criteria (stable income, decent credit history, ability to service the loan)
- Buy within the property price caps for your area
- Use a participating lender (there are over 30, including all major banks)
One thing people often miss: having access to the First Home Guarantee scheme doesn’t guarantee loan approval. You still need to prove you can afford the repayments. Banks aren’t just handing out money.
The Stuff Nobody Tells You
Look, borrowing 95% of a property’s value isn’t without downsides. We’d be doing you a disservice if we didn’t mention them.
Your loan is bigger, which means your monthly payments are bigger. A $500k loan costs you more than a $400k loan. Simple maths, but worth remembering when you’re stretching your budget.
If property values dip, you’re closer to being in negative equity. It’s not common, but it happens.
Over 30 years, you’ll pay more interest on a 95% loan than on an 80% loan. That’s the trade-off for buying earlier with less deposit using the First Home Guarantee.
Does this mean it’s a bad move? Not necessarily. For most people, the alternative is spending another five years saving while paying rent and watching prices climb. But you should know what you’re getting into.
Making the First Home Guarantee Work: Practical Steps
Before you start house hunting:
- Get brutally honest about your budget. Not what you can borrow, but what you can comfortably repay while still having a life. Use mortgage calculators but then subtract about 10% for real world expenses.
- Save beyond the 5%. You’ll need money for stamp duty, conveyancing, inspections, moving costs. Some states offer stamp duty concessions for first home buyers, but you still need cash for everything else.
- Check your credit score. Banks will, so you should too. If there are issues, sort them before applying.
- Get pre-approval. Don’t waste weekends at open homes if you don’t know what you can borrow. Pre-approval gives you a clear number.
When you’re ready to buy:
- Location over size. A smaller place close to work beats a house in the outer suburbs where you’re spending $150 a week on petrol and losing hours to commuting.
- Factor in ongoing costs. Strata fees, council rates, insurance, maintenance. They add up quickly and need to fit in your budget.
- Don’t max out your borrowing capacity. Just because a bank will lend you $650k doesn’t mean you should take it all. Leave breathing room.
Why Getting Help Actually Helps
Here’s the thing about home loans. There’s a lot of jargon, a lot of fine print, and lenders all have slightly different criteria. What one bank approves, another might reject. Some lenders are great for first timers; others prefer borrowers with solid equity behind them.
A good broker cuts through all that. They look at your situation (your income, your savings, your employment, your goals) and match you with lenders who are most likely to approve you on decent terms. They also catch problems before they become deal breakers.
And here’s something most people don’t realise, in almost all cases, you don’t pay broker fees. Lenders pay them a commission when loans settle. You get expert advice on the First Home Guarantee without the upfront cost.
What Happens Next
The property market isn’t getting easier. Prices aren’t dropping and saving a 20% deposit while paying rent is brutal. The expanded First Home Guarantee gives you a legitimate avenue to home ownership with less deposit and without the LMI slug.
But timing matters. Interest rates move, lending criteria change, and properties in your price range don’t sit on the market forever. If you’ve got the deposit saved and you’re ready to stop renting, now’s the time to at least find out where you stand.
Ready to Stop Renting and Start Owning?
Oz Lend has spent over 20 years helping Melbourne buyers navigate the property market. We know the local market inside out, we work with more than 30 lenders, and we stay on top of schemes like the First Home Guarantee, so you don’t have to.
Whether you’re just starting to think about buying or you’re ready to make an offer next week, we’ll help you figure out exactly what you can afford, which lenders suit your situation, and how to structure your loan properly.
No pressure, no sales pitch. Just straight advice from people who’ve helped hundreds of first timers get into their first home.
Book a free consultation and find out what’s possible for you. Your first home might be closer than you think.
FAQ's
Unfortunately, no. Both buyers need to be first timers. If one of you has owned before, you won’t qualify.
No. It’s for owner occupiers only. You need to live in the property as your main home.
You can sell whenever you want, but you’ll have used your first home buyer status. Your next purchase will be subject to standard lending rules, including LMI if you borrow above 80%.
Yes. The scheme can be used for new homes, off-the-plan apartments, and house-and-land packages, provided the purchase price stays within the relevant caps.
Yes. You may still be eligible for state-based stamp duty concessions or grants, depending on the property and your circumstances.
Yes, but you’ll need extra documentation. Usually, two years of tax returns and financial statements. Banks are more cautious with self-employed borrowers, but it’s doable.
It varies by location. In Melbourne, the caps are high enough that you’re not limited to the absolute outer suburbs. Your broker can tell you about the exact figures for areas you’re interested in.
No, but it makes things significantly easier. Brokers know which lenders are more likely to approve your specific situation, can compare products across 30+ lenders, and handle most of the paperwork. Most don’t charge you directly. They get paid by the lender when your loan settles.
Changes to income, employment, or expenses can affect final approval. Always tell your broker before making offers so issues can be managed early.
No. The 5% covers the deposit only. You’ll still need extra funds for legal fees, inspections, moving costs, and any stamp duty not waived.
