What Is the First Home Guarantee & How Can It Help You Buy Sooner?

The Australian property market offers an exciting opportunity - first home buyers can jump in with just a 5% deposit instead of saving up 20%. Thanks to the First Home Guarantee, buyers don't need to pay Lenders' Mortgage Insurance (LMI) and save almost $30,000.

The median home price in Australia sits at $820,000, which means buyers only need $41,000 as a 5% deposit. The last time $41,000 would cover a 20% deposit on a median-priced home was way back in 2002. Housing Australia steps in to guarantee the remaining amount to the lender, which bridges the gap between your 5% deposit and the standard 20% requirement.

The scheme has set aside 35,000 places for eligible low and middle-income first home buyers during the 2025/2026 financial year. Since spots are limited, potential buyers should move quickly to secure their place in the program.

This piece breaks down the First Home Guarantee's workings, eligibility criteria, property options, and application process. You'll find everything you need to know about making this scheme your stepping stone to homeownership.

What is the First Home Guarantee Scheme?

The First Home Guarantee (FHG) helps eligible Australians buy their first home sooner. This federal initiative belongs to the Home Guarantee Scheme and has helped over 230,000 people achieve their dream of owning a home.

How the scheme helps first home buyers

First home buyers face a major challenge - saving a large deposit. Most buyers need a 20% deposit to avoid Lenders Mortgage Insurance (LMI). The good news is that eligible buyers can purchase property with just a 5% deposit through this scheme.

A smaller deposit creates clear advantages for buyers. You'll spend less time saving money to buy a home. You also won't need LMI, which saves thousands in upfront costs.

Let's look at an example. Someone buying a $917,394 property in certain areas needs only a $45,869 deposit (5%). The First Home Guarantee saves them from paying a big LMI premium. Since LMI usually gets added to the loan amount, buyers save even more on interest payments throughout their loan.

The role of Housing Australia as guarantor

Housing Australia runs the Home Guarantee Scheme for the Australian Government. When buyers get a home loan under the scheme, Housing Australia gives a guarantee to their participating lender.

This guarantee covers the gap between the buyer's 5% deposit and the normal 20% requirement. Housing Australia guarantees up to 15% of the property's value for First Home Guarantee loans.

Keep in mind that the guarantee protects the lender, not the buyer. This isn't a cash payment or deposit - it's a legal agreement between Housing Australia and the participating lender. If a buyer defaults and the property sale doesn't cover the loan, Housing Australia pays the lender up to the agreed limit.

Difference between FHG and other grants

Don't mix up the First Home Guarantee with programs like the First Home Owner Grant (FHOG). The FHOG gives eligible first home buyers a one-off payment when they buy or build a home, but usually only for new builds.

The First Home Guarantee works with many property types, including existing homes, vacant land, off-the-plan purchases, and land and house packages. The scheme focuses on reducing deposit requirements and removing LMI costs.

Each program has unique eligibility rules, but they can work together. Many first home buyers use both programs - they might use the FHOG money toward their Home Guarantee Scheme deposit.

The First Home Guarantee works with other government incentives but has its own rules. Loans must be principal and interest, with terms up to 30 years.

Who is eligible for the First Home Guarantee?

The First Home Guarantee eligibility depends on several specific criteria. Housing Australia's clear guidelines are the foundations of financial status, citizenship, property ownership history, and more.

Income and citizenship requirements

First Home Guarantee applicants must stay within defined income thresholds. Housing Australia states that individual applicants need a taxable income of no more than $125,000 for the previous financial year. Joint applicants can have a combined taxable income up to $200,000. Your Australian Taxation Office Notice of Assessment must verify these figures for the previous financial year.

Australian citizens or permanent residents can apply at the time of entering the home loan agreement. A valid Medicare card or Defence ID will verify your status.

First home buyer status explained

First-time buyers benefit most from this scheme, though people who haven't owned property recently can also qualify. You're eligible if you're a first home buyer or haven't owned or held an interest in residential property in Australia in the last 10 years.

Property ownership includes various forms of interest in real property, such as:

Owning land in Australia
Holding a lease of land in Australia
Having a company title of interest in Australian land

The 10-year rule applies to both applicants in joint applications. One person's property ownership in the last decade makes the application ineligible.

Joint vs individual applications

You can apply for the First Home Guarantee individually or jointly. Individual applicants become the sole borrowers on the home loan and must meet all eligibility requirements based on their circumstances, regardless of relationship status.

Partners, friends, siblings, or other family members can submit joint applications together. Both applicants' combined circumstances must meet all eligibility criteria. The scheme doesn't cover home loans with three or more borrowers.

Minimum age and deposit criteria

Applicants must be 18 years or older when taking out the home loan. This rule applies to everyone.

Your deposit should be between 5% and 20% of the property's value. The 5% minimum threshold matters - anything less disqualifies you. The First Home Guarantee won't cover your home loan if you've saved 20% or more after other costs like stamp duty and legal fees.

Owner-occupier requirement

The First Home Guarantee supports owner-occupiers only, not investment properties. You must:

Move into the property within 6 months of loan settlement or, for new builds, receiving an occupancy certificate
Live there while the First Home Guarantee supports your home loan

This occupancy requirement helps Australians secure homes to live in rather than investment properties. Your program benefits could end if you don't meet this requirement.

What types of properties and loans are allowed?

The First Home Guarantee lets you choose from several property types, giving you plenty of options for your home selection. Let's take a closer look at what properties qualify and the loan conditions before you start your home-buying trip.

Eligible property types under the scheme

The First Home Guarantee covers four main categories of residential properties:

Existing houses, townhouses, or apartments
House and land packages (where you purchase land and build from the same provider)
Vacant land with a separate contract to build a home
Off-the-plan apartments or townhouses

Properties must qualify as "residential properties" under the National Consumer Credit Protection Act. On top of that, the buyer's name must appear as the legal owner of the property at settlement.

Price caps by state and region

Location plays a big role in property price thresholds. This reflects the different housing markets throughout Australia. The purchase price and property value must stay within the price cap for your chosen location.

Price caps are higher in capital cities and large regional centres that have populations over 250,000. This includes Newcastle, Wollongong, Geelong, Gold Coast, and Sunshine Coast. New South Wales serves as a good example - Sydney's cap sits at $900,000, while regional NSW has a cap of $750,000.

Housing Australia offers an online Postcode Search Tool to help you check your location's price cap. While this tool is helpful, you should double-check the applicable price cap with your participating lender.

Loan structure and repayment terms

First Home Guarantee loans need to meet specific requirements. These loans must be:

Owner-occupier home loans (investment properties are not supported)
Principal and interest repayments (with limited exceptions for interest-only loans during construction phases)
Terms of up to 30 years (plus up to three additional years if building a new home)

Construction loans that include land purchase and home building might allow interest-only payments during construction. The loan switches to principal and interest payments after construction ends.

Timeframes for moving in or building

The scheme has strict timelines for occupation and construction. Buyers of existing properties must move in within six months after their home loan settles.

Building timelines follows a clear structure. If you're buying a house and land package or vacant land with a building contract, you need to:

Start building within 12 months of settlement
Complete construction within 36 months of settlement
Move in within six months of getting your occupancy certificate

Off-the-plan purchases have different rules. Construction must finish within 24 months of either the contract date (if building has started) or within 24 months of building commencement.

Without doubt, these timeframes help ensure the scheme achieves its goal - helping Australians find homes to live in rather than investment properties.

How to apply for the First Home Guarantee

The First Home Guarantee application process needs you to work directly with participating lenders, not Housing Australia. A well-laid-out process will give you a better chance of securing your place in this competitive scheme.

Check your eligibility with a lender

Housing Australia's online Eligibility Tool helps determine if you meet the simple requirements. This tool gives you a quick picture of your eligibility status based on key criteria. The final eligibility determination comes from participating lenders.

The scheme is accessible to more people through major banks. NAB, Commonwealth Bank, and Westpac are the main participants. Whatever lender you choose, note that you can't apply directly to Housing Australia for a guarantee. Your applications must go through authorised participating lenders as part of a home loan application.

Documents you'll need to prepare

The formal application requires several important documents:

Your full name and date of birth
Medicare number (including your position on the card) or PMKey if relevant
Notice of Assessment (NOA) for the previous financial year
A completed Home Buyer Declaration form (available from your lender or Housing Australia's website)
Additional documents as required by your specific lender

Lenders might ask for many more details to assess your eligibility and loan suitability.

Steps to reserve a place in the scheme

Your application typically moves through these stages:

Contact a participating lender to assess your eligibility
Complete original application and documentation
Lender reserves your guaranteed place (held for 14 days while you complete your application)
Upon pre-approval, you'll have 90 days to find a home and sign a contract of sale
After signing a contract, complete final approvals with your lender
Settlement occurs, allowing you to move into your new home

Working with a mortgage broker vs a lender

You can apply directly through participating lenders, but many first home buyers choose mortgage brokers. Brokers help you find scheme participants and options that match your specific circumstances.

A broker's biggest advantage is access to multiple lenders instead of being tied to a single institution's products. This broader view helps you find better loan terms while still accessing the First Home Guarantee.

What are the benefits and risks of the scheme?

The First Home Guarantee gives aspiring homeowners several advantages. Buyers should think over both the benefits and potential risks before they commit to the scheme.

Saving on Lenders Mortgage Insurance (LMI)

Avoiding Lenders Mortgage Insurance stands out as the scheme's main financial benefit. Buyers can save around $39,305 on LMI for a property worth $917,394 with a 5% deposit. This saving helps buyers even more since they don't pay interest on the LMI premium that would normally add to their loan balance.

Faster access to the property market

Most first home buyers get stuck trying to save a 20% deposit while property prices keep rising. This scheme breaks that cycle and lets buyers enter with just a 5% deposit. Buyers can stop paying rent earlier and start building equity in their own home, even with a bigger loan amount.

Ongoing obligations and disqualification risks

Buyers must follow certain rules throughout the guarantee period after securing it. The property needs to stay owner-occupied. No one can turn it into a rental or investment property. Breaking these rules might void the guarantee and lead to extra costs like LMI.

What happens if you refinance or move out

Refinancing comes with strict rules. Buyers can switch to another participating lender and keep their guarantee if they don't increase the loan or extend its term. A switch to a non-participating lender means losing the guarantee completely.

The guarantee stops working if buyers move out of the property. Lenders might charge extra fees as stated in the original home loan agreement. First home buyers should think about their long-term living plans carefully before they apply for this scheme.

Conclusion

The First Home Guarantee gives Australians a great shot at getting into the property market earlier than planned. This scheme lets future homeowners skip the usual 20% deposit and buy their dream home with just 5% saved up. On top of that, it cuts out Lenders' Mortgage Insurance, which saves buyers a lot of money upfront and makes homes more available to people dealing with steep property prices.

Smart buyers need to think over how this program fits their long-term housing goals. The scheme works best for people who plan to live in their purchased property since it requires owner-occupation and limits refinancing choices. First-time buyers should note that a smaller deposit might get them into the market faster, but they'll end up with more debt that builds interest over time.

Getting started is pretty simple if you qualify. You just need to talk to participating lenders, get your paperwork ready, and find a property that fits your area's price cap. The number of spots each financial year is limited, so interested buyers should move quickly to grab their chance. The First Home Guarantee tackles the biggest roadblock for first home buyers - saving up a huge deposit while house prices keep rising. This government program can reshape the scene of homeownership for thousands of Australians each year if they pair it with solid financial planning.

For more information or support, please don’t hesitate to contact our friendly team here at Mason Finance Group. We specialise in first home loans and are more than willing to discuss your journey with you.

Key Takeaways

The First Home Guarantee scheme helps eligible Australians enter the property market faster by reducing deposit requirements and eliminating costly insurance premiums.

• Enter the market with just 5% deposit instead of 20%, avoiding Lenders Mortgage Insurance and saving up to $39,000 in upfront costs.

• Income limits apply: Individual applicants need taxable income under $191,124, while joint applicants must stay below $305,798 combined.

• Must be owner-occupied for the entire guarantee period - converting to investment property or moving out disqualifies you from the scheme.

• Limited spots available: Only 35,000 places allocated for 2025/2026, so eligible buyers need to act quickly through participating lenders.

• Property price caps vary by location - use Housing Australia's postcode tool to check limits in your desired area before house hunting.

This government initiative bridges the gap between saving for a traditional deposit and rising property prices, making homeownership achievable for low and middle-income first home buyers who commit to long-term owner-occupation.

FAQs

Q1. What is the First Home Guarantee, and how does it work?

The First Home Guarantee is an Australian government initiative that allows eligible first-time buyers to purchase a home with as little as a 5% deposit, instead of the traditional 20%. The government acts as a guarantor for up to 15% of the property's value, eliminating the need for Lenders Mortgage Insurance.

Q2. Who is eligible for the First Home Guarantee?

Eligibility criteria include being an Australian citizen or permanent resident, at least 18 years old, a first-time homebuyer (or not having owned property in the last 10 years), and meeting specific income thresholds. For individuals, the taxable income limit is $125,000, while for couples, it's $200,000 per year.

Q3. What types of properties can be purchased under this scheme?

The scheme covers various residential property types, including existing houses, townhouses, apartments, house and land packages, vacant land with a separate contract to build, and off-the-plan purchases. However, all properties must fall within the price caps set for each location.

Q4. How do I apply for the First Home Guarantee?

To apply, first check your eligibility using Housing Australia's online tool. Then, approach a participating lender or mortgage broker to start the application process. You'll need to provide documents such as your Notice of Assessment, Medicare card, and a completed Home Buyer Declaration form.

Q5. What are the main benefits and risks of using the First Home Guarantee?

The primary benefit is entering the property market sooner with a smaller deposit, saving on Lenders Mortgage Insurance. However, risks include taking on a larger loan amount, strict occupancy requirements, and limitations on refinancing options. Additionally, if you move out or convert the property to an investment, you may lose the guarantee and face additional costs.