The First Home Guarantee (5% Deposit Scheme)

The First Home Guarantee, now called the 5% Deposit Scheme, lets an eligible first home buyer borrow with a deposit as small as 5% and pay no lenders mortgage insurance. The government guarantees part of the loan, so the lender doesn’t need the insurance. You still borrow from an ordinary lender at an ordinary rate and repay every dollar yourself.

It changes what you need on day one. It doesn’t change what the loan costs.

The expansion removed the two old gates. There are no income caps and no limit on the number of places, so the January scramble for an allocation has gone, and single parents can buy with a 2% deposit through the family stream. In Sydney the price cap is $1.5 million.

A hypothetical: a Hornsby unit with 5% down

Take the Hornsby couple from our borrowing power calculator, an example household rather than a client. The median unit in their postcode sold for $750,000 in the March 2026 quarter, so 5% is a $37,500 deposit against the $150,000 that would avoid insurance the usual way. Our LMI calculator puts the premium on a 95% loan at about $32,868. Under the scheme that cost disappears.

As first home buyers under $800,000 they also pay no transfer duty, against $27,937 at the standard rate. Between the two schemes they skip roughly $60,000 of upfront cost and buy years sooner than they otherwise could. That’s exactly what the scheme is for.

What the bigger loan costs

The scheme removes a fee. It doesn’t remove the extra borrowing. Staying with the hypothetical, at 6.48% over 30 years, their $712,500 loan costs about $710 a month more than an 80% loan would, and about $142,955 more in interest if they never pay it down faster. Sina puts both numbers side by side in a first meeting: the insurance saved on one side, the extra interest on the other.

The monthly cost is what you live with. The full repayment on their 95% loan is about $4,494 a month in the hypothetical, against a median unit rent in Hornsby of $700 a week, roughly $3,033 a month. Paying more to own than to rent is normal in Sydney, and our rent vs buy property calculator shows how long it takes to come out ahead.

Thin equity is the other cost. With so little in, a small fall in prices can leave you owing close to what the home is worth for a few years, which matters if you need to sell or refinance early.

The Epping problem

The scheme doesn’t change what you can borrow. Our Epping buyer, another hypothetical household on one salary of $130,000, would need a $779,000 loan for the $820,000 median unit at 5% down, and the borrowing power estimate stops at about $516,642. The guarantee covers the deposit gap, not the income gap, and every loan under the scheme still has to pass the lender’s test at three points above the rate. Run the borrowing power numbers before you get attached to a listing. For a single buyer, the usual ways through are a cheaper unit, a guarantor, or a second income on the application, and each changes the risk in its own way.

Where Sydney’s cap bites

On DCJ’s medians for the March 2026 quarter, every median unit in the postcodes we work in, from North Sydney to Castle Hill and the Northern Beaches, sits under the $1.5 million cap except Manly’s. Not one median house does. The cheapest in our patch, Kellyville’s, was $1,808,000, and Hornsby’s was $1,931,000. So for a unit the scheme helps a lot here, and for a freestanding house on the upper North Shore it usually can’t help, because nobody can make an over-cap purchase eligible.

Our stamp duty calculator shows the median price and duty for each of those postcodes, which makes a quick map of where the federal scheme and the NSW duty concession overlap.

How it stacks with the NSW schemes

The guarantee is federal. NSW runs the First Home Buyers Assistance Scheme, which removes duty up to $800,000 and reduces it below $1 million. For a unit in Hornsby, Ryde, Carlingford or Kellyville both apply. In Epping, Eastwood or Castle Hill the guarantee applies in full and the duty relief only partly. Our first home buyer stamp duty guide covers the NSW rules.

The stack has edges. Duty relief fades as the price climbs toward $1 million, and buyers near that line sometimes find that negotiating a little off the price saves far more than the amount they negotiated. Sina keeps a one-page map of those edges for buyers sitting near a threshold.

The catches

You have to live in it. The scheme backs owner-occupiers, and moving out to rent the place has consequences for the guarantee, so if a rental is the plan it’s the wrong tool.

A guarantee place is held by the lender. Switching lenders mid-application, or refinancing later, needs handling so the place is kept or given up on purpose rather than lost halfway through a settlement. Pre-approvals also expire, and a place that lapses with one means redoing the paperwork just as you find the property, so keep the two dates in step. Our pre-approval guide walks through the order.

Not every lender takes part, and the ones that do still price and assess differently. The choice of who holds your place is a real comparison, not a default to whoever advertised first.

How applying works

You apply through a participating lender, not the government. The lender checks your eligibility and assesses the loan as it would any other, and if you qualify it reserves a place under the scheme as part of the application, which the official site explains in full. The order is: confirm you’re eligible, get pre-approved with a lender that takes part, then shop inside the cap with the place secured.

The lender you choose matters a lot. Two participating lenders can give the same couple very different borrowing amounts under the same scheme, because the guarantee doesn’t change how each one counts income, expenses or debts. Comparing them on what they’ll lend, not just the rate, is most of our work for a first home buyer using it. Same scheme, different answer.

Guarantee, guarantor, or neither

People mix this scheme up with a guarantor home loan, because both solve the deposit problem. The difference is who stands behind you. Here it’s the government, inside its price caps and owner-occupier rules, while in a guarantor loan it’s your family, with no price cap but a parent’s property on the line.

If you’re inside the caps, we’d look at the guarantee before a family guarantee, and plenty of commentators would argue with that. It does the same job without putting anyone’s parents at risk, and the idea that guarantor loans are the better option mostly comes from the people selling them. That’s the order we’d run it. What we can’t do is make the scheme fit a house above the cap or an income that doesn’t service the loan. For those buyers the realistic options are a guarantor, paying the insurance, or a different suburb.

Rules change with federal policy, so treat this guide as a snapshot dated October 2026. The official scheme site is the source of truth, and checking your position against it takes us a few minutes in a first conversation. Ask us to run yours.