This article contains general information only and does not constitute personal financial advice. Please consider your own circumstances or speak with a qualified mortgage broker before making any decisions.
Saving a 20% deposit is often one of the biggest obstacles to buying a first home. For many Australians, it can delay home ownership by several years.
What many buyers don’t realise is that, if you’re eligible, you may only need a 5% deposit to enter the property market without paying Lenders Mortgage Insurance (LMI).
In this article, we’ll explain how the scheme works, who qualifies, and a few important details that often catch first home buyers by surprise.
Quick eligibility checklist
You may be eligible if you meet the following criteria:
- You’re a genuine first home buyer – you (and anyone buying with you) haven’t owned residential property in Australia within the last 10 years
- You’re an Australian citizen or permanent resident
- The property will be your principal place of residence – you’re planning to live in it rather than rent it out as an investment
- The property is within your state’s purchase price cap (see the table below)
- There is no income limit – unlike previous versions of the scheme, your income no longer affects your eligibility
If you’re purchasing with a partner, both applicants must meet all of the above criteria. If either person has owned residential property within the last 10 years, the scheme generally won’t be available.
How the scheme actually works
One of the biggest misconceptions is that the Government gives you money towards your deposit. It doesn’t.
Instead, the Australian Government guarantees the difference between your deposit and 20% of the property’s value directly to your lender. This allows the lender to assess your application as though you already have a 20% deposit, meaning you may be able to purchase with as little as a 5% deposit while avoiding Lenders Mortgage Insurance (LMI), which can cost tens of thousands of dollars depending on the size of your loan.
It’s also important to understand what the scheme doesn’t cover. The 5% relates to your deposit only. You’ll still need to budget for other upfront costs, such as stamp duty (unless you’re eligible for an exemption or concession), conveyancing fees, building and pest inspections, and any other purchase-related expenses.
What’s changed recently?
Previously, the scheme included income caps, meaning higher-income earners weren’t eligible. Those income limits have now been removed.
There is also no longer a limit on the number of places available each year. The main eligibility requirement now is ensuring the property falls within your state’s purchase price cap.
| State/Territory | Capital city & major regional centres |
| NSW | $1,500,000 |
| VIC (Melbourne, Geelong) | $950,000 |
| QLD (Brisbane, Gold Coast, Sunshine Coast) | $1,000,000 |
| WA (Perth) | $850,000 |
| SA (Adelaide) | $900,000 |
| ACT | $1,000,000 |
Regional and rest-of-state price caps are generally lower, so it’s important to check the applicable limit for your area before making an offer.
It’s also worth remembering that not every lender participates in the scheme, and participating lenders may have different credit policies and assessment criteria. Choosing the right lender can make a significant difference to the outcome of your application.
As a rough guide, purchasing at the top of the NSW cap ($1.5 million) with a 5% deposit would require borrowing approximately $1.425 million and a deposit of approximately $165,000. While you may meet the eligibility criteria, you’ll still need sufficient income to comfortably service a loan of that size.
Two things that surprise most first home buyers
Qualifying for the scheme is only part of the story. Once buyers begin the lending process, there are two common surprises that often arise.
1. You may be able to combine it with other government schemes
One strategy many first home buyers aren’t aware of is combining the 5% Deposit Scheme with the First Home Super Saver Scheme (FHSSS).
We’ve seen clients make voluntary super contributions over time, withdraw those savings through the FHSSS, and then use the 5% Deposit Scheme to purchase with a much smaller upfront deposit than they originally expected.
Used together, these schemes can help some buyers enter the property market much sooner than relying on either strategy alone.
Whether this approach is suitable depends on your individual circumstances, but it’s certainly worth exploring before committing to a purchase.
2. Saving more isn’t always an advantage
This is something many first home buyers don’t realise until they start the application process.
Let’s say you’re buying a property for $500,000. Under the scheme, you only need a 5% deposit, which is $25,000. You’ll still need enough money to cover upfront costs like stamp duty (where applicable), transfer fees and legal costs.
But what if you’ve saved $70,000?
A common assumption is that you can use the minimum $25,000 as your deposit and keep the remaining $45,000 in your bank account. In reality, that’s usually not how it works.
Most lenders expect you to contribute the majority of your genuine savings towards the purchase. While policies vary between lenders, many will only allow you to keep a reasonable amount of funds after settlement, often around $30,000, to cover things like moving costs, furniture, appliances or minor renovations.
In simple terms, the scheme is designed to help buyers who need a smaller deposit to get into the market sooner. If you’ve built up a much larger amount of savings, lenders will generally expect those funds to be used as part of your purchase rather than sitting in your bank account after settlement.
“The idea behind the scheme is that you can’t have a substantial amount of savings and only contribute the minimum 5% deposit. If you’ve accumulated significantly more than the minimum, lenders will generally expect you to contribute most of those savings towards the purchase.”
– Kane Ladhams, Senior Mortgage Broker
If you’ve managed to save well above the minimum deposit, it doesn’t necessarily mean the scheme isn’t the right option. However, it’s important to understand how your lender will assess your savings, as an alternative loan structure may provide greater flexibility and leave you in a stronger overall financial position.
What should first home buyers take away?
The 5% Deposit Scheme has made home ownership more accessible for many Australians, but qualifying for the scheme is only one part of the equation.
The right approach depends on factors such as how much you’ve saved, whether you’re purchasing on your own or with a partner, whether the property falls within the relevant price cap, and whether combining the scheme with other government initiatives could leave you in a stronger position.
Understanding your options before making an offer can make a significant difference—not only to your borrowing capacity, but also to your long-term financial position.
If you’re unsure whether you’re eligible or simply want to understand whether the scheme is the right fit for your circumstances, we’d be happy to walk you through your options, explain how the different schemes work together, and help you choose the approach that best suits your goals.