First Home Guarantee: 5% Deposit Home Loans for First-Time Buyers in 2024

Are you a first-time homebuyer in Australia? The good news is that owning property is becoming more accessible with the introduction of 5% deposit home loans. But with so many options available, it can be overwhelming to navigate the home loan landscape. 

That’s why we’ve put together a comprehensive guide to help you understand how these loans work, what the First Home Loan Deposit Scheme 2024 (First Home  Guarantee scheme) entails, and provide you with tips to make an informed decision about your home loan.

Please note that eligibility for the First Home Loan Deposit Scheme 2024 or any other home loan scheme in Australia may differ for expats and foreign investors. We recommend consulting with our qualified mortgage brokers from Odin Mortgage to determine your eligibility before applying.

5% Deposit Home Loans

5% deposit home loans have made homeownership more accessible to first-time buyers who may have previously struggled to save a large deposit. With only a 5% deposit required, buyers can enter the property market sooner and start building equity in their own homes.

The introduction of these loans has also led to increased competition among financial institutions. As a result, interest rates and fees have become more competitive, making home ownership more affordable for many Australians, even in areas with high property prices.

The Australian government has also stepped up to support first-time buyers by introducing the First Home Loan Deposit Scheme 2024. This scheme allows eligible buyers to secure a home loan with a 5% deposit, without paying Lenders Mortgage Insurance (LMI), which can save buyers thousands of dollars.

However, it’s important to keep in mind that a 5% deposit does come with risks. With a smaller deposit, borrowers will likely have a higher loan-to-value ratio, which could result in higher interest rates and ongoing mortgage insurance premiums.

How 5% Deposit Home Loans Work

Traditionally, homebuyers need a 20% deposit to secure a mortgage. However, 5% deposit home loans have made it possible for borrowers to purchase a property with as little as 5% of the purchase price. 

These loans cater to first home buyers and expats, helping them get a foothold in the competitive Australian property market. Here’s an overview of how it works.

  • 5% Deposit Home Loans allow borrowers to purchase a property with as little as 5% of the purchase price as a deposit
  • Traditional home loans require a 20% deposit to secure a mortgage
  • 5% Deposit Home Loans cater to first home buyers and expats
  • Borrowers typically apply for a loan through a participating lender, provide evidence of eligibility, and take out a loan with the lender
  • With a 5% deposit home loan, borrowers may be required to pay lenders mortgage insurance (LMI) to cover the risk of being unable to repay the mortgage
  • With the First Home Guarantee scheme, the government acts as a guarantor for the loan, eliminating the need to pay LMI
  • The scheme provides support until the loan balance is reduced to below 80% of the property’s purchase value
  • Conditions that could make borrowers ineligible for support include refinancing, selling, or moving out of the property

Low Deposit Home Loans for First Home Buyers

With low deposit home loans, you can secure your dream home sooner without the burden of saving a hefty deposit. These loans come with certain caveats, such as a higher interest rate or the need for Lenders Mortgage Insurance (LMI). However, they make homeownership more accessible for first home buyers and expats.

The First Home Loan Deposit Scheme 2024

Government 5% Deposit Scheme

The Australian government introduced the First Home Loan Deposit Scheme (FHLDS) to support first home buyers in purchasing a property. The scheme allows eligible first home buyers to secure a mortgage with as little as a 5% deposit while avoiding LMI costs. The government guarantees the remaining deposit amount, effectively bridging the gap between the 5% deposit and the 20% deposit traditionally required by lenders.

Securing Your Spot in the First Home Guarantee Scheme 2024

The FHLDS is limited to a specific number of spots each financial year. It’s crucial to check the availability and apply early to secure your place.

Here are key points to note regarding the updates to the First Home Loan Deposit Scheme for the 2024-25 financial year:

  • The First Home Loan Deposit Scheme (FHLDS) has been renamed the First Home Guarantee, as per the latest updates.
  • The scheme has been expanded in the 2025-26 Federal Budget to allow more first home buyers to access it.
  • From 1 July 2023 until 30 June 2026, there will be an increase in the number of placements for the low deposit scheme to 50,000 spots.
  • After the three-year period, the number of placements will revert to 35,000 per year.
  • During the initial three-year period, the scheme will provide 35,000 places per year for the First Home Guarantee, enabling first-time home buyers who meet the eligibility criteria to purchase a home with a 5% deposit, without requiring Lenders Mortgage Insurance (LMI).
  • The newly announced Regional Home Guarantee will offer 5,000 places per year during the three-year period, allowing eligible home buyers to purchase a newly built home in a regional location with a deposit of only 5% and without the burden of Lenders Mortgage Insurance (LMI).
  • Also, 10,000 spots per year for the Family Home Guarantee, enabling eligible single parents to buy a home with a 2% deposit and no LMI, are available.

Am I Eligible for the First Home Guarantee?

To apply, you must meet the scheme’s eligibility criteria and work with a participating lender. Here are the eligibility criteria for the First Home Loan Deposit Scheme:

  • You must be a first home buyer who has not previously owned or co-owned a property in Australia.
  • You must be at least 18 years old and an Australian citizen.
  • You must be purchasing a residential property in Australia that will be your principal place of residence.
  • You must have a deposit of between 5% and 20% of the property’s value.
  • Your taxable income must be less than $125,000 per annum for individuals and less than $200,000 per annum for couples or those purchasing with others.
  • The property you are purchasing must meet the price cap determined by your location.

In the 2024-25 Federal Budget, the government announced that they will increase the number of spots available under their home deposit scheme to 50,000 per year for three years starting from the 2024-25 financial year. The number of spots will then decrease to 35,000 per year after the initial three-year period.

During the initial three-year period until 30 June 2026, 10,000 of the 50,000 available spaces for the scheme will be reserved for eligible regional home buyers who want to build or purchase a newly constructed home in a regional area under the Regional Home Guarantee section. As part of the scheme, the government will allocate 5,000 places to single parents through the Family Home Guarantee.

However, not all properties will be eligible for purchase under the scheme. Only ‘entry properties’ within the determined price caps will be underwritten by the scheme. The price caps for entry properties vary by state, territory, and location. For example, the price caps for NSW are $900,000 for capital city/regional centre and $750,000 for the rest of the state.

It’s essential to check the price cap in your area before applying for the scheme.

5%-Deposit-Home-Loans
Source: National Housing Finance and Investment Corporation (NHFIC)

Keep an eye on announcements regarding the First Home Loan Deposit Scheme 2023 and be prepared to act quickly. 

Pros and Cons of First Home Loan Deposit Scheme

Pros of FHLDS

One of the benefits of the government’s deposit scheme is that it can be used in conjunction with the First Home Super Saver Scheme. The Super Saver Scheme allows home buyers to withdraw their voluntary superannuation contributions to use as a deposit on a property. If you have made voluntary super contributions (up to $15,000 per financial year), you can withdraw that money to take advantage of the government’s 5% deposit offer.

Additionally, as of 1 July 2022, you are now able to withdraw up to $50,000, which is up from $30,000 previously.

Cons of FHLDS

While the government’s 5% deposit scheme offers benefits, there are also potential drawbacks to consider. One of these is the risk involved in taking out a loan with a smaller deposit, as the remaining amount owing will be larger. This could result in a longer mortgage term, making it harder to pay back the home loan, particularly if minimum repayments are already larger due to the larger loan.

Another disadvantage is that borrowers may end up paying more total interest over the loan term, as the smaller deposit means a greater amount on which interest is calculated.

While borrowers with expectations of increased earnings may be able to accelerate their loan repayment, additional fees may be charged by lenders for making extra repayments on fixed rate home loans beyond allowable annual limits.

Navigating 5% Deposit Home Loans by State

5% Deposit Home Loans in Melbourne, Victoria

Melbourne’s property market is booming, and securing a home with a 5% deposit can help you enter the market faster. Start by researching local lenders and mortgage brokers that offer low deposit home loans for first home buyers in Victoria.

5% Deposit Home Loans in Queensland

From Brisbane to the Gold Coast, Queensland offers a diverse range of properties for expats and first home buyers. Research the local market and find a reputable mortgage broker to help you secure a 5% deposit home loan in QLD.

5% Deposit Home Loans in New South Wales

New South Wales, particularly Sydney, is known for its high property prices. With a 5% deposit home loan, you can enter the market sooner and start building equity in your property. Explore lenders and mortgage brokers that specialise in low deposit home loans in NSW.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

LMI Exemptions and Waivers

LMI for First Home Buyers

Lenders Mortgage Insurance (LMI) protects the lender if a borrower defaults on their home loan. LMI is typically required for home loans with less than a 20% deposit. While LMI can be a substantial expense, some exemptions and waivers are available for first home buyers.

LMI Exemption NSW

In New South Wales, eligible first home buyers can benefit from an LMI exemption, saving thousands of dollars in LMI fees. To qualify, you must meet specific criteria, such as being an Australian citizen, purchasing your first property, and meeting income thresholds.

LMI Government Scheme

The government’s First Home Loan Deposit Scheme is designed to help first home buyers avoid LMI costs. Under this scheme, the government guarantees the difference between your 5% deposit and the traditional 20% deposit, allowing you to secure a home loan without paying LMI.

LMI Waiver for First Home Buyers

Some lenders offer LMI waivers for eligible first home buyers, such as those in specific professions (e.g., medical professionals) or borrowers with a strong financial history. Research and compare lenders to find one that offers LMI waivers and meets your needs.

Can I Qualify for a 5% Deposit Home Loan as an Australian Expat Living Overseas?

Yes, many lenders offer 5% deposit home loans to Australian expats living overseas. However, lending criteria may differ from those for residents, such as higher interest rates or additional documentation requirements.

Expats can be eligible for the First Home Guarantee scheme if they meet the eligibility criteria:

  • Eligibility requirements for expats include being an Australian citizen living and working overseas, a permanent resident living overseas, or a New Zealand citizen who has been living and working in Australia for at least 200 days
  • Expats must also intend to occupy the property as their principal place of residence and meet other criteria, such as income and loan limits
  • Eligibility requirements may vary, so it’s best to consult with a mortgage broker or participating lender to determine if you qualify for the scheme

If you’re an expat or foreign investor considering purchasing a home in Australia, the 5% deposit home loan could be your key to making your dream a reality. Don’t wait – take the first step today by contacting a specialist mortgage broker.

Our experienced team can help determine your eligibility and provide valuable information on the lenders involved in the scheme.

Don’t let this opportunity slip away – reach out today and start your journey towards homeownership in Australia!

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Frequently Asked Questions

Yes, the First Home Loan Deposit Scheme can be combined with other government initiatives, such as the First Home Owner Grant or stamp duty concessions, provided you meet the eligibility requirements for each.

Factors that may affect your eligibility for a 5% deposit home loan include your credit score, employment status, income, existing debts, and the property’s location and value.

To improve your chances of securing a 5% deposit home loan, maintain a good credit score, minimise existing debts, save a larger deposit, and work with a reputable mortgage broker who can help you find the best loan options.

While 5% deposit home loans are primarily designed for first home buyers and owner-occupiers, some lenders may offer low deposit options for investment properties.

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