Key Takeaways
- Buy with just 5% deposit - government guarantees the rest to 80%
- No Lenders Mortgage Insurance required - saving $10,000-$40,000+
- Income cap: $125,000 singles, $200,000 couples (2024-25 FY)
- Property price caps vary by location (Melbourne: $800,000)
- 35,000 places available for 2024-25 financial year
- Must be Australian citizen and genuine first home buyer
Saving a 20% deposit for a home in Melbourne or Geelong can take years, even decades for some buyers. With median house prices above $900,000 in Melbourne and around $750,000 in Geelong, a traditional 20% deposit means saving $150,000-$180,000 before you can buy without paying Lenders Mortgage Insurance.
The First Home Guarantee (formerly First Home Loan Deposit Scheme) changes this equation dramatically. This federal government program allows eligible first home buyers to purchase with just a 5% deposit while avoiding the costly LMI premium that would normally apply when borrowing above 80% of a property's value.
At Mortgage & Finance Advisory, we help eligible buyers navigate this scheme, connecting them with participating lenders and ensuring applications are positioned for success. Understanding how the scheme works, its limitations, and how to maximise your chances is essential before beginning your property search.
How the First Home Guarantee Works
The First Home Guarantee is not a cash grant or deposit contribution. Instead, the federal government provides a guarantee to participating lenders, covering the portion of the loan that would normally require LMI protection. This allows lenders to offer loans up to 95% LVR without charging LMI premiums.
Here's the mechanics: when you borrow more than 80% of a property's value, lenders face increased risk if you default. Traditionally, they mitigate this risk by requiring LMI, which protects the lender (not you) against potential losses. Under the First Home Guarantee, Housing Australia (formerly NHFIC) provides this protection instead, eliminating the need for LMI.
You still borrow the full amount and make full repayments on a 95% LVR loan. The guarantee doesn't reduce your loan size or your repayments. The benefit is purely the LMI saving, which can be substantial depending on your loan amount and deposit size.
Important Clarification: The government guarantee is not a gift or grant. You're still responsible for your full loan and repayments. The scheme simply removes the LMI cost barrier, allowing you to buy sooner with a smaller deposit.
LMI Savings: Real Numbers for First Home Buyers
Understanding the actual dollar value of avoiding LMI helps illustrate why this scheme is so valuable. LMI costs vary based on the loan amount, deposit percentage, and individual lender pricing.
| Property Price | Deposit (5%) | Loan Amount | Typical LMI Cost |
|---|---|---|---|
| $600,000 | $30,000 | $570,000 | $18,000 - $24,000 |
| $700,000 | $35,000 | $665,000 | $22,000 - $30,000 |
| $800,000 | $40,000 | $760,000 | $28,000 - $38,000 |
These LMI costs are typically capitalised into the loan, meaning you pay interest on them for 30 years. A $30,000 LMI premium capitalised at 6.5% interest costs approximately $68,000 over a 30-year loan term. The First Home Guarantee eliminates this entire cost.
Real Client Outcome
A young couple from the Surf Coast purchased a $720,000 property with $36,000 deposit (5%). Without the First Home Guarantee, their LMI would have been approximately $26,000. By securing a place in the scheme, they saved this amount entirely and were able to direct those funds toward furniture and initial home improvements instead.
First Home Guarantee Eligibility Requirements
Income Caps for 2024-25
Your taxable income determines eligibility. For the 2024-25 financial year, the caps are $125,000 for single applicants and $200,000 combined for couples or joint applicants. This is assessed based on your previous financial year's tax return, meaning income earned in 2023-24 determines eligibility for applications in 2024-25.
Income includes taxable income from all sources: salary, investments, rental income, and business income. If you're close to the threshold, strategic timing of bonuses or other income might affect eligibility.
Property Price Caps in Victoria
Property price limits vary by location and are updated periodically. Current caps for Victorian buyers include:
| Location | Price Cap |
|---|---|
| Melbourne | $800,000 |
| Geelong | $800,000 |
| Regional Victoria (other) | $650,000 |
These caps are designed to target moderate-priced properties rather than premium markets. In Melbourne, $800,000 provides access to apartments in inner suburbs or houses in outer and growth areas. In Geelong and the Surf Coast, this cap covers a reasonable range of properties.
Citizenship and Residency Requirements
Applicants must be Australian citizens. Permanent residents are not eligible for the First Home Guarantee, though they may qualify for other first home buyer assistance programs. At least one applicant must be a citizen if applying jointly.
First Home Buyer Definition
You must be a genuine first home buyer, meaning you haven't previously owned or co-owned residential property in Australia. This includes investment properties, inherited properties, and properties held through trusts or companies where you had a controlling interest. Overseas property ownership doesn't disqualify you.
Owner-Occupier Requirement
The property must be your principal place of residence. You must intend to move in within six months of settlement and continue living there while the guarantee remains in place. This scheme is not available for investment properties.
Important Consideration
If circumstances change and you need to move out (work relocation, relationship changes), you must notify your lender. Converting to an investment property may trigger repayment of the guarantee benefit or require refinancing.
How to Apply for the First Home Guarantee
Applications are made through participating lenders, not directly to Housing Australia. Your mortgage broker can coordinate the entire process, checking eligibility and submitting applications alongside your home loan application.
Initial Eligibility Assessment
We review your income, citizenship status, property ownership history, and target purchase price to confirm scheme eligibility before proceeding.
Lender Selection
Not all lenders participate in the scheme, and participating lenders have varying allocation of places. We identify lenders with available places and competitive loan products.
Pre-Approval Application
We submit your home loan pre-approval application with the First Home Guarantee request included. This reserves a place in the scheme subject to finding a suitable property.
Property Search
With pre-approval confirmed and a scheme place reserved, you can search for properties within the price cap, knowing your finance is in place.
Formal Approval and Settlement
Once you've secured a property, we convert to formal approval. The guarantee is confirmed at settlement, and your new home is yours without LMI.
Participating Lenders
Around 30 lenders participate in the First Home Guarantee, including major banks and smaller lenders. However, places are allocated to each lender, meaning your preferred lender may have exhausted their allocation even if national places remain available.
Working with a mortgage broker provides significant advantages here. We monitor which lenders have available places and can pivot quickly if one option closes. We also ensure you're accessing competitive rates, as participating in the scheme doesn't mean accepting an inferior loan product.
Timing Your First Home Guarantee Application
Places are limited and released each financial year on July 1. The scheme typically sees high demand, particularly early in the financial year. However, places are also released throughout the year as reserved allocations go unused.
Don't wait until you've found a property to apply. Securing pre-approval with a scheme place reserved protects your position. The reservation typically lasts 90 days, giving you time to find a suitable property without losing your place.
Combining First Home Guarantee with Other Assistance
The First Home Guarantee can be combined with other first home buyer benefits. Victorian buyers may also access the First Home Owner Grant ($10,000 for new homes under $750,000), stamp duty exemptions or concessions for properties under relevant thresholds, and the First Home Super Saver Scheme for accelerated deposit saving through superannuation.
Strategically combining these programs maximises the assistance available. A first home buyer purchasing a new $700,000 property could potentially access the First Home Guarantee (saving $25,000+ in LMI), stamp duty concessions (saving up to $30,000), and the FHOG ($10,000 grant), representing combined benefits exceeding $65,000.
Frequently Asked Questions About First Home Guarantee
Yes, if at least one applicant is an Australian citizen. The citizen must be on the loan application and property title.
Properties above the price cap are not eligible. If you find a property at $810,000 with an $800,000 cap, you cannot use the scheme for that purchase.
Refinancing typically releases the guarantee. However, if you've built sufficient equity (above 80% LVR), refinancing won't trigger LMI anyway.
Overseas property ownership doesn't disqualify you. The first home buyer requirement applies only to Australian property.
Yes, both construction loans and off-the-plan purchases can utilise the First Home Guarantee, subject to normal eligibility criteria.
Check Your First Home Guarantee Eligibility
Find out if you qualify for the First Home Guarantee and how much you could save on LMI.
