How to Buy a Home with a 5% Deposit
Are you looking to buy your first home in Australia but have limited savings? Good news! You can buy a home with a 5% deposit or less. By exploring government schemes and specific lender policies, you can turn your homeownership dream into reality.
The Australian Government offers a Home Guarantee Scheme. This lets qualified buyers purchase a home without Lenders Mortgage Insurance (LMI). This scheme includes options like the First Home Guarantee and the Family Home Guarantee. Each has different rules and limits on the property’s value.
Additionally, some banks extend loans up to 95% of the property’s value plus LMI. If that’s not enough, a guarantor loan can help. This type of loan uses someone else’s property to cover the deposit. It could also mean you don’t need any deposit at all.
However, it’s important to understand the risks. You might face higher interest rates and negative equity is possible if there is a drop in the home’s value. To better your chances of securing a low deposit mortgage, make sure you have a steady job. Keep your debts low, and save regularly.
Use all the help you can get to buy your home with just 5% down. This way, you can achieve the dream of owning a home.
First Home Guarantee – What is it?
The First Home Guarantee is a great option for first home buyers in Australia who want to get into the property market. It allows people to buy their first home with just a 5% deposit. This scheme, previously known as the First Home Loan Deposit Scheme, helps by not requiring LMI. This can save buyers a lot of money.
Under this scheme, the Commonwealth Government acts as a guarantor for your loan, guaranteeing the difference between 20% of the property value and the deposit amount you contribute.
How much deposit is needed for the First Home Guarantee Scheme?
Only a 5% deposit is needed for the First Home Guarantee Scheme plus purchase costs such as stamp duty (if applicable). This makes it much easier to buy a home for many first-time buyers who might struggle saving a 20% deposit. Plus, not needing LMI makes the process smoother and less costly.
Visit our stamp duty calculator to calculate the stamp duty and government fees.
Eligibility criteria for accessing the First Home Guarantee
To be eligible for the scheme, the following requirements need to be met.
| Requirement | Description |
|---|---|
| Applicant Type | Individual or two joint applicants |
| Citizenship/ Residency | Australian citizen(s) or permanent resident(s) at loan application |
| Age | At least 18 years old |
| Income | Must not exceed $125,000 for singles or $200,000 for joint applicants (based on previous financial year’s Notice of Assessment) |
| Property Occupancy | Intending owner-occupiers of the purchased property |
| Property Type | Must be buying or building a new home to live in (not an investment property) |
| Property Value Cap | Dependent on the location of the property. See next section |
| Prior Ownership | Must not have owned or held an interest in a property in Australia in the past ten years |
| Deposit Contribution | Must contribute a minimum deposit of 5% of the property value |
| Occupancy Requirement | Must move into the property within six months of settlement and live there for at least as long as the loan has the government guarantee |
Please note: This table is for informational purposes only. You may want to refer to the official guidelines from Housing Australia for the latest details: First Home Guarantee | Housing Australia
Property price caps
There’s a cap on the property’s price you can buy with this scheme. This cap varies depending on where the property is. It generally falls between $400,000 and $900,000. It’s important to know these limits. Also, remember there are only a limited number of spots available each year.
| State/Territory | Capital City & Regional Centres* | Rest of State |
|---|---|---|
| NSW | $900,000 | $750,000 |
| VIC | $800,000 | $650,000 |
| QLD | $700,000 | $550,000 |
| WA | $600,000 | $450,000 |
| SA | $600,000 | $450,000 |
| TAS | $600,000 | $450,000 |
| ACT | $750,000 | N/A |
| NT | $600,000 | N/A |
| Jervis Bay Territory & Norfolk Island | $550,000 | N/A |
| Christmas Island & Cocos (Keeling) Islands | $400,000 | N/A |
Notes:
- Regional Centres are defined by the Australian Bureau of Statistics (ABS).
- This table applies to all HGS programs (First Home Guarantee, Family Home Guarantee, and New Home Guarantee – though the latter is no longer available).
- You can find the official information and a property purchase price cap tool on the Housing Australia website: Property Price Caps | Housing Australia
Regional First Home Buyer Guarantee (RFHBG) – What is it?
The RFHBG helps first home buyers purchase a home in a regional area with as little as a 5% deposit plus purchase costs.
How much deposit is needed for the Regional First Home Buyer Guarantee Scheme?
For first home buyers, only a 5% deposit is required under this scheme plus costs such as stamp duty. It gets rid of the need for LMI, usually needed for under 20% deposits. This makes buying your first home in the country more affordable.
Visit our stamp duty calculator to calculate the stamp duty and government fees.
Eligibility criteria for accessing the Regional First Home Buyer Guarantee
| Requirement | Description |
|---|---|
| Applicant Type | Individual or two joint applicants |
| Citizenship/ Residency | Australian citizen(s) or permanent resident(s) at loan application* |
| Age | At least 18 years old |
| Income | Must not exceed $125,000 for singles or $200,000 for joint applicants (based on the previous tax year’s Notice of Assessment) |
| Property Occupancy | Intending owner-occupiers of the purchased property |
| Property Type | Must be buying or building a new home to live in (not an investment property) |
| Property Location | Must be located in a regional area or a designated adjacent regional area |
| Property Value Cap | The property value must be under the regional cap (see below) |
| Prior Ownership | Must not have owned or held an interest in a property in Australia in the past ten years |
| Deposit Contribution | Must contribute a minimum deposit of 5% of the property value |
| Residency Requirement | Must have lived in the regional area or an adjacent regional area for at least 12 months prior to settlement (exceptions may apply) |
| Occupancy Requirement | Must move into the property within six months of settlement and live there for at least as long as the loan has the government guarantee |
Note: This table is for informational purposes only. You may want to refer to the official guidelines from Housing Australia for the latest details: RFHBG | Housing Australia
Property price caps
| State/Territory | Regional Centres* | Rest of Regional Areas |
|---|---|---|
| NSW | $900,000 | $750,000 |
| VIC | $800,000 | $650,000 |
| QLD | $700,000 | $550,000 |
| WA | N/A | $450,000 |
| SA | N/A | $450,000 |
| TAS | N/A | $450,000 |
| ACT | N/A | N/A |
| NT | N/A | $600,000 |
| Jervis Bay Territory & Norfolk Island | $550,000 | N/A |
| Christmas Island & Cocos (Keeling) Islands | $400,000 | N/A |
Notes:
- Regional Centres are defined by the Australian Bureau of Statistics (ABS).
- This table applies specifically to the Regional First Home Buyer Guarantee Scheme.
- Capital cities and major centres are not included in this scheme.
- You can find the official information and a property purchase price cap tool on the Housing Australia website: Property Price Caps | Housing Australia
Family Home Guarantee – What is it?
The Family Home Guarantee is a government scheme designed to help single parents buy a home. They must have at least one child. It lets you buy with a small deposit of just 2%. Plus, you won’t need to pay for Lenders Mortgage Insurance (LMI).
How much deposit is needed for the Family Home Guarantee Scheme
With this scheme, you only need a 2% deposit plus purchase costs such as stamp duty. This makes owning a home easier for single parents.
Visit our stamp duty calculator to calculate the stamp duty and government fees.
Eligibility criteria for accessing the Family Home Guarantee
| Requirement | Description |
|---|---|
| Applicant Type | Single parent or single legal guardian of at least one dependent child |
| Citizenship/ Residency | Australian citizen or permanent resident at loan application |
| Age | At least 18 years old |
| Income | Must not exceed $125,000 per year (based on the previous tax year’s Notice of Assessment) |
| Property Occupancy | Intending owner-occupier of the purchased property |
| Property Type | Must be buying or building a new home to live in (not an investment property) |
| Prior Ownership | Must not currently own a property, or upon settlement not intend to own another property |
| Deposit Contribution | Must contribute a minimum deposit of 2% of the property value (up to a maximum of 20%) |
| Occupancy Requirement | Must move into the property within six months of settlement and live there for at least as long as the loan has the government guarantee |
| Dependent Definition | * Natural or adoptive parent of at least one dependent child * Legal guardian of a person receiving a disability support pension who lives with you |
Note: This table is for informational purposes only. You may want to refer to the official guidelines from Housing Australia for the latest details: Family Home Guarantee | Housing Australia
Property price caps
| State/Territory | Capital City & Regional Centres* | Rest of State |
|---|---|---|
| NSW | $900,000 | $750,000 |
| VIC | $800,000 | $650,000 |
| QLD | $700,000 | $550,000 |
| WA | $600,000 | $450,000 |
| SA | $600,000 | $450,000 |
| TAS | $600,000 | $450,000 |
| ACT | $750,000 | N/A |
| NT | $600,000 | N/A |
| Jervis Bay Territory & Norfolk Island | $550,000 | N/A |
| Christmas Island & Cocos (Keeling) Islands | $400,000 | N/A |
Notes:
- Regional Centres are defined by the Australian Bureau of Statistics (ABS).
- This table applies to all HGS programs (First Home Guarantee, Family Home Guarantee, and New Home Guarantee – though the latter is no longer available).
- You can find the official information and a property purchase price cap tool on the Housing Australia website: Property Price Caps | Housing Australia
95% Home Loans for home buyers not eligible for the Home Guarantee Scheme Loans
For those aiming to buy a house but not eligible as first-time buyers under the Home Guarantee Scheme, a 95% home loan is a good option. It lets you buy a home with a deposit of 5% of the purchase price plus costs. But these loans do come with additional costs like Lenders Mortgage Insurance (LMI). So, it’s crucial to weigh their benefits and risks.
Lenders Mortgage Insurance (LMI) for 95% loans
Unless you are eligible for an LMI waiver a hefty mortgage insurance premium applies to 95% home loans. This insurance protects the lender against loss if you can’t pay your mortgage. LMI costs differ from one lender to another.
There are a few lenders that may allow you to borrow 95% plus LMI. The catch is you may pay lenders mortgage insurance that is in the tens of thousands of dollars and a comparatively high interest rate will apply.
How much deposit is needed for a 95% loan?
The name would suggest you only need a 5% deposit for a 95% loan but that is not quite the case. Purchase costs need to be accounted for. You may also have to pay LMI from your funds, depending on the lender used.
95% + LMI loan
There are a handful of lenders that may allow you to add some or all of the LMI to the loan. The total loan, including LMI, may equal 97% to 99% of the purchase price. The total deposit required in this situation will be as follows, at a minimum:
5% of the property purchase price +
Stamp duty & Government registration fees +
Other purchase costs such as solicitor/conveyancer fees, pest & building inspection etc (allow approximately $3,000)
95% loan including LMI
Most lenders will only allow the maximum loan amount equal 95% of the purchase price, including capitalised LMI.
At these lenders, you will generally be borrowing 91-92% of the purchase price plus LMI to ensure the total loan remains below 95%. So you effectively require a deposit of 8-9% of the purchase price plus other purchase costs.
The total deposit required in this situation will be as follows, at a minimum:
8-9% of the property purchase price +
Stamp duty & Government registration fees +
Other purchase costs such as solicitor/conveyancer fees, pest & building inspection etc (allow approximately $3,000)
The Pros and Cons of a 95% Loan
A 95% home loan is great if you want to buy a house quickly. It can help build wealth as your property’s value goes up. But, you might face higher interest rates. And, if property values fall, you could find yourself owing more than the house is worth. It’s important to keep your finances healthy to deal with these challenges.
| Pros | Cons |
|---|---|
| Allows you to buy a home sooner | Potentially higher interest rates |
| Only 5% + costs needed in some circumstances | In most cases, 5% genuine savings are required or 6 months of rental history. |
| Allows you to get into the market sooner | High LMI premiums unless eligible for a waiver (Medical Professionals) |
| Potential property value appreciation by getting into the market sooner | Risk of negative equity if property market declines |
It’s wise for eligible first-time home buyers to carefully consider whether a 95% home loan is a good fit. This option might be suitable for those looking to purchase with a small deposit and who are in a strong financial position.
Guarantor home loans – Buy with a 5% deposit or less without Lenders Mortgage Insurance
Getting a home loan with just a 5% deposit or even no deposit is possible with guarantor home loans. This method helps eligible home buyers dodge the need for Lenders Mortgage Insurance (LMI). A guarantor loan lets a family member, often a parent, use their home’s equity to support your loan. With this support, you might get loan terms as good as if you had a big deposit.
How Does a Guarantor Loan Work?
A guarantor loan involves a family member, like a parent, using their house as extra loan security. This means you can buy a house with a small deposit or none, and you don’t have to pay for LMI. It can make it easier for first home buyers to get a loan. Having two properties as security can also mean better loan conditions and maybe lower interest rates. This is a great help if saving the usual 20% deposit is hard for you.
The Pros and Cons of a Guarantor Loan
Guarantor home loans offer several benefits. They allow you to get into the housing market sooner and to skip the large cost of LMI. You can borrow more thanks to the guarantor’s support, helping home buyers. But, remember, there are risks. If you can’t pay back the loan, the property of the guarantor might be taken.
Before choosing a guarantor loan, it’s wise to talk with a mortgage broker. They can explain all you need to know, including your and the guarantor’s duties. If you’re thinking about your options, like saving more for a deposit or dealing with LMI, knowing as much as you can is key. This way, you can decide wisely on how to secure a home loan.
