First Home Loan Deposit Scheme

The First Home Loan Deposit Scheme allows some eligible first home buyers with a 5% deposit to get home loans without lenders mortgage insurance.

Last updated:

The federal government's First Home Loan Deposit Scheme guarantees mortgages for first home buyers who have only saved a 5% deposit, effectively helping them buy sooner without paying lenders mortgage insurance premiums.

The First Home Loan Deposit Scheme came into effect on 1 January 2020.

Need help saving a house deposit? Check out our guide

The First Home Loan Deposit Scheme explained

  • If you've saved 5% of the purchase price of your property the government can guarantee the remaining 15% of the deposit.
  • Access to the scheme is limited to 10,000 borrowers.
  • You need to borrow the remaining 95%, but you can avoid LMI.
  • Your mortgage needs to be an owner-occupied loan with principal-and-interest repayments.
  • Eligible first home buyers can't be earning more than $125,000 a year ($200,000 combined for couples).
  • The value of eligible homes under the scheme varies by state and city/region (see property value caps below).

This scheme will make low deposit home loans cheaper and is administered through the National Housing Finance and Investment Corporation (NHFIC) in partnership with a range of lenders.

You can take a quick quiz on the NHFIC's website to see if you're eligible for the scheme.

What are the benefits of the scheme?

The scheme allows you to get a home loan sooner because you only have to save a smaller deposit. 5% deposit home loans already exist, but you need to pay LMI when borrowing more than 80% of a property's value.

With the first home loan deposit scheme you save time, because you can save a 5% deposit in a quarter of the time it would take to save 20%. You also avoid the LMI premiums, which can cost thousands of dollars (you can get LMI estimates using Genworth's LMI calculator).

But there is a downside. Saving a smaller deposit and borrowing more money means paying more interest over time. Let's break it down with the example of a $400,000 property and a 5% deposit versus a 20% deposit:

  • Property cost = $400,000
  • Deposit = $20,000 (5%)
  • Loan amount = $380,000
  • Interest rate = 4.00% over 30 years

In this scenario your costs are as follows:

  • LMI = $12,768
  • Monthly repayments = $1,814
  • Property cost = $400,000
  • Deposit = $80,000 (20%)
  • Loan amount = $320,000
  • Interest rate = 4.00% over 30 years

In this scenario your costs are as follows:

  • LMI = $0
  • Monthly repayments = $1,527

If you wanted to save a 20% deposit you'd need an extra $60,000 (but no LMI). This would equal around 33 months of mortgage repayments with a 5% deposit.

But with a 20% deposit your repayments would be noticeably cheaper, at $1,528 a month. That's $286 a month less.

Skipping the LMI means you buy the property faster and save $12,768 in LMI costs. But you'll pay $103,122 more in interest costs over 30 years with a 5% deposit.

But what if property values rise fast?

It's impossible to predict, but rising property prices could make the scheme more appealing. If your property rises in value while you're paying it off you're gaining equity (even while paying more interest).

And if you're still saving for that 20% deposit while prices keep rising, the amount of money you'll need to save will only continue to grow over time. You could get stuck.

Who is eligible?

Only Australian citizens are eligible (not permanent residents). You will need to be a first home buyer (if you own an investment property you won't be eligible) earning $125,000 ($200,000 for a couple) a year or less.

The scheme is limited to 10,000 borrowers.

The scheme is open to a range of property types, including apartments, townhouses, house and land packages and existing houses. It is not limited to newly-built or off the plan purchases (unlike some first home owner grants).

Couples must be married or in de facto relationships. Friends or siblings cannot qualify for this scheme together.

Property value caps

To be eligible for the scheme you must be purchasing a property valued at or below the following thresholds:

State/TerritoryCapital city/regional centre*Rest of state
NSW$700,000$450,000
VIC$600,000$375,000
QLD$475,000$400,000
SA$400,000$250,000
WA$400,000$300,000
TAS$400,000$300,000
ACT$500,000$500,000
NT$375,000$375,000

*A regional centre is defined as a city with a population above 250,000, such as Newcastle, Wollongong or Geelong.

How do I apply for the First Home Loan Deposit Scheme?

You can apply directly with any lender participating in the scheme (see the full list of lenders below). You cannot apply for the scheme directly through the NHFIC.

The Commonwealth Bank and NAB accept applications from 1 January 2020 and smaller lenders take applications from 1 February 2020.

Which lenders are taking part in the scheme?

According to the NHFIC the following lenders will participate in the scheme:

Will the First Home Loan Deposit Scheme really help?

This is a trickier question to answer and experts are split on the issue. Avoiding LMI and buying faster definitely removes an obstacle for first home buyers.

But LMI can be capitalised onto your loan, meaning you borrow it with your loan and pay it back over time. The people benefiting from the scheme are those who would probably be able to buy a property regardless.

Limiting the scheme to 10,000 borrowers further reduces its overall effectiveness. Consider that more than 8,000 first home buyers took out mortgages in March 2019 (according to the ABS).

There is a risk in borrowing 95% in a falling market

If property prices fall and you buy a home with a 5% deposit you risk ending up in negative equity. This is when your mortgage ends up being bigger than the value of the property.

Having negative equity makes it harder to sell your property or refinance. But if you keep paying off the loan principal and property prices rise you should be OK in the long run.

Are there other government schemes to help me buyers?

At the state and territory level most governments offer:

  • First home owner grants. This is a grant of money that can be used towards your purchase and is often reserved for first home buyers purchasing newly built properties.
  • Stamp duty concessions. Many governments waive or discount stamp duty for first home buyers, removing one of the bigger property costs.

Federally, there is another government scheme called the First Home Super Saver Scheme. This scheme allows you to make extra contributions to your super and then withdraw them to use for a home loan deposit, with tax minimisation benefits for doing so.

The home buying process step by step

Compare home loan options for first home buyers

Rates last updated January 26th, 2020
$
Loan purpose
Offset account
Loan type
Repayment type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
Greater Bank Great Rate Discount Variable with Family Pledge Home Loan - Up to 110% LVR
3.33%
3.34%
$0
$0 p.a.
110%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, QLD and ACT only.
loans.com.au Smart Home Loan - (Owner Occupier, P&I)
2.88%
2.90%
$0
$0 p.a.
80%
Get one of the lowest variable interest rates on the market and pay 0 application or ongoing fees.
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000
2.84%
2.84%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
State Custodians Low Rate Home Loan with Offset - LVR 80% to 90% (Owner Occupier, P&I)
3.20%
3.22%
$0
$0 p.a.
90%
Save on interest with a free 100% offset account and buy your property with just a 10% deposit. This loan is not available for construction.
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)
3.03%
3.04%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.

Compare up to 4 providers

Aussie Home Loans Logo

Start your home loan application with expert help from Aussie.

By submitting this form, you agree to the Finder Privacy and Cookies Policy and Terms of Use

Applications are subject to approval. Conditions, fees and charges apply. Please note that you need to be an Australian citizen or permanent resident to apply.

Credit services for Aussie Select, Aussie Activate and Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 (“Aussie”) and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. Credit for Aussie Activate products is provided by Pepper Finance Corporation Limited ACN 094 317 647 (“Pepper”). Pepper Group Limited ACN 094 317 665, Australian Credit Licence 286655 acts on behalf of Pepper. Credit services for Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 Australian Credit Licence 246786 (“Aussie”) and its appointed credit representatives. Aussie is a trade mark of AHL Investments Pty Ltd ABN 27 105 265 861. Credit and any applicable offset accounts for Aussie Elevate are issued by Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL / Australian Credit Licence 237879.

Aussie is a trade mark of AHL Investments Pty Ltd. Aussie is a subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. ©2019 AHL Investments Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786.

By submitting this form, you agree to the Aussie privacy policy.

An Aussie mortgage broker can find the right home loan for you.

  • FREE Suburb and Property Report with every appointment.
  • Access 3,000+ loans from over 20 lenders.
  • Get expert help with your loan application, including paperwork and eligibility.

Aussie Home Loans Lender Logos

The Adviser’s number 1 placed mortgage broker 7 years running (2013-2019)

*The loans in the table above may also be available for non-first home buyers. But first home buyers may find these loans useful because many have low interest rates or max insured LVRs above 80%, meaning you can get them with a smaller deposit.

Related Posts

Home Loan Offers

Important Information*
Logo for St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)

Online only cashback offer: Refinancers borrowing $250,000 or more can get a $4,000 cashback for their first application (Other terms, conditions and exclusions apply). Buyers and refinancers can get this competitive variable interest rate. Application fee waived for loans above $150,000.

Logo for UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000

Take advantage of a low-fee mortgage with a special interest rate of just 2.84% p.a. and a 2.84% p.a. comparison rate.

Logo for Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)

Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.

Logo for loans.com.au Essentials - Variable (Owner Occupier, P&I)
loans.com.au Essentials - Variable (Owner Occupier, P&I)

A competitive interest rate home loan with interest only options. Interest rate 3.04% p.a.
comp rate of 3.06% p.a.

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.

4 Responses

  1. Default Gravatar
    SteveOctober 21, 2019

    Does the 5% deposit have to be by way of genuine savings – saved over a minimum 3-6month period to be acceptable to the banks (normal) or does the govt. guarantee avoiding mortgage insurance negate that requirement.
    I see the great benefit in not paying a mortgage insurance premium but even saving 5% is difficult.
    thanks
    Steve

    • Avatarfinder Customer Care
      NikkiOctober 23, 2019Staff

      Hey Steve,

      Thanks for your comment. I understand your position and it is indeed a challenge to reach a 5% savings for a home loan. In general, the 5% deposit requirement for the First Home Loan Deposit Scheme will genuinely need to be savings. At the same time, this would depend on the specific requirements of the lender you choose.

      As a friendly reminder, carefully review the eligibility criteria of the loan before applying to increase your chances of approval. Read up on the terms and conditions and product disclosure statement and contact the bank should you need any clarifications about the policy.

      Hope this helps and feel free to reach out to us again for further assistance.

      Best,
      Nikki

  2. Default Gravatar
    EmilySeptember 14, 2019

    Hi,

    How do I apply for this?

    • Avatarfinder Customer Care
      JeniSeptember 14, 2019Staff

      Hi Emily,

      Thank you for getting in touch with Finder.

      Please get in touch with your state revenue office to know more on this first home loan deposit scheme. Further announcement/s will be provided before its launch date which will start on the 1st of January 2020.

      I hope this helps.

      Thank you and have a wonderful day!

      Cheers,
      Jeni

Ask a question
Go to site