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Buy your first home with a low deposit and no LMI with these government-backed schemes

Vidhu Bajaj avatar
Vidhu Bajaj
- 8 min read
Buy your first home with a low deposit and no LMI with these government-backed schemes

You typically need a 20 per cent deposit to qualify for a home loan if you don’t want to pay extra for Lenders Mortgage Insurance (LMI). It means you'll need to pay at least $144,000 upfront for a home loan when purchasing a median-priced property worth around $720,000.

Saving such a large amount can take several years for most individuals and couples. If you don't want to wait it out, some lenders will allow you to borrow with a lesser deposit. But you might have to pay for LMI, a one-time payment to protect the lender from the potential loss if you default on your mortgage.

How much an LMI premium might cost you largely depends on the size of your loan. It can often run into thousands of dollars, adding substantially to your debt. However, if you're buying under the Home Guarantee Scheme (HGS), you can purchase your house with as little as a 5 per cent deposit (and 2 per cent if you’re a single parent) and not pay any LMI premium either. 

What is the Home Guarantee Scheme?

There are several government grants and guarantees to help first home buyers get their foot on the property ladder sooner.

The Home Guarantee Scheme (HGS) is one such Australian Government initiative that could help you purchase a home sooner with a low deposit. It comprises three government-backed guarantees that allow you to borrow a higher percentage of the property’s value, with the government taking responsibility for the risk to the lender. This works similarly to a family guarantee home loan. The only difference is that instead of a family member, it's the government playing the role of a guarantor for your home loan.

The Home Guarantee Scheme includes:

  • The First Home Guarantee (FHBG)
  • The Regional First Home Buyer Guarantee (RFHBG)
  • The Family Home Guarantee (FHG)

If you’re an Australian citizen over 18 years, you can check your eligibility under HGS using the Eligibility Tool available on the National Housing Finance and Investment Corporation (NHFIC) website. It is a short questionnaire that helps you assess whether you're eligible for a government guarantee scheme to buy your home.

You could also speak to a broker to learn more about buying a house with a low deposit if you don't qualify for a government guarantee.

First Home Guarantee or FHBG

The First Home Guarantee was introduced to help eligible first home buyers enter the property market sooner. It's a government-backed guarantee that allows you to purchase your first home with as little as a 5 per cent deposit, without any requirement for Lenders Mortgage Insurance (LMI).

Who's eligible for FHBG

Only Australian citizens older than 18 years can apply for this guarantee. You must be a first home buyer, earning less than $125,000 per annum, to be eligible for FHBG. This salary threshold is increased to $200,000 for couples purchasing a home together. If you're applying for the scheme with your partner, you must be married or in a de-facto relationship. Friends and siblings aren't eligible for the scheme together.

The government plans to offer 35,000 places under this scheme every financial year. To apply, you could make an application through any of the Home Guarantee Scheme participating lenders or talk to a mortgage broker to make the application on your behalf.

You can buy both newly built and established properties under FHBG, subject to the price threshold applicable in your state or territory.

Regional First Home Buyer Guarantee or RFHBG

The Regional First Home Buyer Guarantee is quite similar to the First Home Guarantee, but it's available to Australians purchasing their first home in a regional area.

If you're eligible to purchase under this scheme, you could buy a house in a regional area with as little as a 5 per cent deposit without paying for LMI. The government will guarantee the rest of your deposit, up to 15 per cent of the property's value, enabling you to buy a house without saving for a 20 per cent deposit.

Interestingly, one of the eligibility requirements states that you must live in a regional area for at least 12 months before executing the home loan agreement to be eligible for the scheme. It means you cannot just decide to purchase a house in a regional area to take advantage of this home guarantee scheme. You should have stayed in the area (or an adjacent regional area) for a considerable time before you decide to make it your permanent home.

Who's eligible for RFHBG?

​​You must be an Australian citizen and 18 years or older to apply for a place under this scheme. Additionally, your income must not exceed $125,000 if you're applying alone and $200,000 if you're applying with your partner.

The scheme is only for first home buyers purchasing a home in a regional area. If you've previously owned a home in Australia, you may not be eligible for a place under this scheme.

You should have also stayed outside a capital city in a regional area for at least a year before applying for a government guarantee to assist with your purchase. However, defence personnel may be eligible for a partial exemption.

The government has provided a handy Regional Checker to help you check your eligibility for the scheme. You can use this tool to determine whether your current home and the suburb where you wish to buy are in regional areas covered by the scheme.

You could contact any of the participating lenders on the panel of the Home Guarantee Scheme for more information on the scheme. You can buy an existing house, a house and a land package, an off-the-plan property, and even vacant land with a contract to build a home under the scheme. However, remember to check the property price threshold in your location before applying.

Family Home Guarantee or FHG

The Family Home Guarantee is another government initiative to help more Australians enter the property market. Aimed at helping single mums and dads get their own home, it allows eligible buyers to purchase a new or established home with as little as a 2 per cent deposit and without any LMI payment.

Overall, the Family Home Guarantee is similar to the First Home Guarantee. Both are government guarantees and not grants, which means you'll have to pay back the money as part of your mortgage. However, qualifying for finance with a lower deposit will enable thousands of couples and single parents who were previously locked out of the market to purchase their own homes.

Who's eligible for FHG?

To be eligible for the Family Home Guarantee, you must be a single parent with at least one dependent. In addition, only Australian citizens over 18 years of age with a taxable income not exceeding $125,000 per annum (excluding child support payments) may apply under this scheme.

Both first home buyers and previous owner-occupiers who don't currently own a home (or investment property or land) are eligible for the Family Home Guarantee scheme. It's also possible to buy both new and existing homes under the Family Home Guarantee subject to the regional property caps.

Applications for the scheme can be made through any of the participating lenders on the panel of the Home Guarantee Scheme.

Don't bite off more than you can chew!

If you have adequate income to service a home loan but haven't been able to save up a sizeable deposit, a government guarantee could help you own your home sooner without having to pay anything extra for an LMI premium.

However, you must remember that the Home Guarantee Scheme doesn’t offer any grant, like the  First Home Owner Grant (FHOG) administered by some states. It is only a guarantee that allows you to borrow money for a house with a low deposit.

What's important to remember is that the government only guarantees your mortgage, allowing you to borrow a larger percentage of the property's value without paying for LMI. However, you're required to pay off the loan within 30 years or less, and it's worth checking whether you can accommodate the higher repayments or not.

While this doesn't mean you should avoid using government guarantee schemes, it would help run the numbers on a repayment calculator to estimate your monthly repayments and budget accordingly. 

It’s also worth checking your eligibility for any government grant (such as the First Home Owner Grant) or stamp duty concessions available in your state to help with your purchase. You can visit your local state or territory’s website for more information on any applicable grants or concessions.

First Home Loan Deposit Scheme

Learn more about the First Home Loan Deposit Scheme. Find out how you can apply for a home loan with a 5% deposit, and pay no Lender's Mortgage Insurance


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Product database updated 25 Jun, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.