Did you know you can buy house with a deposit as low as 5%?
If you’re a first home buyer in Melbourne, the deposit probably feels like the biggest wall between you and a front door. Saving 20% of a Melbourne purchase price can take years, and prices don’t wait around for anyone.
That is where the Australian Home Guarantee Scheme comes in. It lets eligible first home buyers buy with a deposit as low as 5%, and you don’t pay Lenders Mortgage Insurance (LMI). For many Melburnians, that could bring a home purchase forward by years.
I’m Amit, a mortgage broker here in Melbourne, and I talk to nervous first timers every week. This guide walks you through how the scheme works, who can use it, and what to do next. No jargon, and where a word needs explaining, I’ll explain it.
What is the Australian Home Guarantee Scheme?
The scheme is a federal government program. The government guarantees part of your home loan to your lender. Because the lender has that backing, it can approve a loan when you have a smaller deposit.
One thing worth knowing: the name has changed. The official site, firsthomebuyers.gov.au, now calls it the Australian Government 5% Deposit Scheme. It was formerly known as the Home Guarantee Scheme. Same scheme, new name, so you will see both terms online.
Here are the key points the official site highlights:
- First home buyers need a minimum 5% deposit.
- Single parents and legal guardians can buy with a minimum 2% deposit.
- There is no Lenders Mortgage Insurance.
- From 1 October 2025, the scheme has no income caps and no waitlist.
- You can buy a house, townhouse or unit, and the scheme covers existing homes and new builds.
The government says it has helped over 320,000 Australians since the scheme started in 2020.
What a 5% deposit means for a Melbourne buyer
Let me show you why this matters, using a simple example. This is only an illustration to show the maths. It is not a price cap or a market figure.
Say you want to buy a home for $600,000. A 20% deposit would be $120,000. A 5% deposit would be $30,000.
That is $90,000 less to save. For most people, that difference is the gap between buying this year and renting for another five.
Melbourne rents keep climbing, and while you save, you pay someone else’s mortgage. A low deposit home loan in Melbourne lets you stop renting sooner and start building equity in your own place.
Why skipping LMI saves you money
LMI is an insurance premium that protects your lender, not you. Lenders usually charge it when your deposit is under 20%. You normally pay it as a lump sum or add it to your loan.
On a Melbourne purchase, that premium can run to thousands of dollars. The amount depends on your loan size and your deposit. Under this scheme, you don’t pay it, which cuts your upfront costs and leaves more cash for stamp duty, legal fees and moving day.
Home guarantee scheme eligibility: what to check
Eligibility has a few moving parts. I’ll cover the main ones here, but the official eligibility tool on firsthomebuyers.gov.au is the best place to confirm your situation. It takes just a few minutes.
Eligibility has a few moving parts. I’ll cover the main ones here, but the official eligibility tool on firsthomebuyers.gov.au is the best place to confirm your situation. It takes just a few minutes.
Who the scheme is for
The scheme targets first home buyers with a minimum 5% deposit. Single parents and legal guardians can qualify with as little as 2%. The official site explains the exact definitions, including who counts as a first home buyer. Read them closely before you assume anything either way.
Your deposit
You need to meet the minimum deposit. That’s 5% for first home buyers. Remember that you still need to cover other costs on top of your deposit, such as stamp duty, legal fees and moving costs. Your lender will also check that you can afford the repayments.
The type of property
The scheme covers houses, townhouses and units. It includes existing homes and new builds, and the official site also mentions building on vacant land.
You must live in it
The guarantee is for a home you’ll live in. The official site is clear that you must keep living in the property as an owner occupier. If you stop meeting your obligations, the guarantee may no longer apply, and your lender could ask you to pay LMI or other costs. This scheme is not for investment properties.
Property price caps
Each location has a price cap, which is the most the property can cost for the scheme to apply. The caps differ between capital cities and regional areas, and they change over time.
I won’t quote a figure here, because an outdated number could mislead you. The official site has a property price cap tool where you can check the cap for the area you want to buy in. The site says the tool is a guide only, so confirm the cap with your lender for any home you’re seriously considering.
Does the scheme suit Melbourne suburbs?
It can, but it depends on where you want to buy and what you can afford. Melbourne is a big, varied market. Inner suburbs, middle ring suburbs and outer growth areas all sit at very different price points.
In general, the price cap matters most in the more expensive suburbs. Many buyers find that units, townhouses and homes in the middle and outer rings give them more room under the cap. That doesn’t mean you can’t buy closer in. It means you should check the cap for each suburb on your shortlist before you fall in love with a property.
My advice is to build a list of suburbs, check the price cap for each one, and compare it with your budget. That small bit of homework saves a lot of heartbreak at auction.
What counts as genuine savings?
Whichever path you take, most lenders want to see genuine savings, generally deposit funds you have accumulated yourself over a period of around three months, rather than a lump sum that appeared the week before you applied. Regular pay deposits into a dedicated savings account, term deposits and shares you already held are usually accepted. A gift from family can often be used, but lenders typically want it clearly documented as a genuine gift rather than a loan you are expected to repay, since undisclosed debts affect your borrowing capacity.
How to apply, step by step
You can’t apply to the government directly. The official site says you apply through a participating lender as part of a home loan application. A mortgage broker can help you work out which lender suits you.
- Check your eligibility. Use the official online tool and read the information guide on firsthomebuyers.gov.au.
- Talk to a participating lender or a broker. They assess your eligibility, explain your loan options and submit your application. Expect to provide your full name, date of birth, Medicare number, proof of citizenship or residency, and a completed Home Buyer Declaration form.
- Start house hunting. Once you have approval, the site says you have 90 days to find a home and sign a contract of sale. Check the price cap for each home you consider.
- Buy and move in. Your lender handles the final approvals. After settlement, you collect the keys.
Other help that may sit alongside the scheme
The 5% Deposit Scheme is one of three federal programs on firsthomebuyers.gov.au. The other two are the First Home Super Saver Scheme, which lets you make voluntary super contributions to save for a first home, and the Help to Buy Scheme, a shared equity program with a minimum 2% deposit.
Victoria also has its own first home buyer supports, such as stamp duty concessions and grants for some purchases. The State Revenue Office Victoria publishes the current rules and thresholds. I’d check both the federal and state sites, because the combination can change your numbers a lot.
The honest bit: borrowing with a small deposit
I want you to go in with your eyes open. A smaller deposit means a bigger loan, and a bigger loan means higher repayments and more interest over time. You also have less equity in the home at the start. If property values dip, that cushion is thin.
The government guarantee helps you get the loan. It doesn’t pay your loan for you. You remain responsible for every repayment and cost. Before you commit, run the numbers with a buffer for rate rises, and make sure the repayments fit your life, not only your borrowing power.
Frequently asked questions
Who is eligible for the Australian Home Guarantee Scheme?
The scheme is for first home buyers with a minimum 5% deposit, and for single parents or legal guardians with a minimum 2% deposit. The official site sets out the full criteria and has an eligibility checker. Your lender will also assess your application.
Are there income limits?
According to the official site, from 1 October 2025 the scheme has no income caps. Your lender will still check that you can afford the loan.
What are the property price limits in Melbourne?
Price caps vary by location, and they change over time. I don’t quote them here, so please use the property price cap tool on firsthomebuyers.gov.au and confirm with your lender.
Does the scheme suit Melbourne suburbs?
It can suit many of them. The deciding factor is whether the property price falls under the cap for that suburb. Units, townhouses and homes in the middle and outer rings often give buyers more options, but check each suburb.
Do I pay Lenders Mortgage Insurance?
No. You don’t pay LMI under the scheme. If you stop meeting the scheme’s obligations, such as living in the home, the guarantee may stop applying, and your lender may ask you to pay LMI or other costs.
Can I buy an apartment or build a new home?
Yes. The official site says you can buy a house, townhouse or unit, whether existing or new. It also mentions building on vacant land.
Can I apply directly to the government?
No. You apply through a participating lender as part of your home loan application.
Your next step as a first home buyer in Melbourne
For a first home buyer in Melbourne, the Australian Home Guarantee Scheme can turn a long wait into a realistic plan. A deposit as low as 5% and no LMI may bring your first home within reach sooner than you expected.
Start with two things. First, run the official eligibility checker on firsthomebuyers.gov.au. Second, book a free chat with me at Seed Loans. I’ll look at your savings, your budget and your target suburbs, check which lenders on my panel offer the scheme, and map out a plan you feel comfortable with.
No pressure and no jargon. Get in touch with Seed Loans today and let’s work out where you stand.
Source for scheme details: firsthomebuyers.gov.au and Australian Government 5% Deposit Scheme, accessed 16 October 2026.
Contact Us
We would love to speak with you.
Feel free to reach out using the below details.
Our Office
44 Lakeview Drive
Scoresby, VIC, 3179
0403 323 436
Visit Us
Address:
44 Lakeview Drive Scoresby, VIC, 3179
Contact Us
We would love to speak with you.
Feel free to reach out using the below details.
Our Office
44 Lakeview Drive
Scoresby, VIC, 3179
0403 323 436
Visit Us
Address:
44 Lakeview Drive Scoresby, VIC, 3179
