Options for first home buyers with less than 20% deposit
First Home Buyers
There’s a lot of information out there about buying your first home. Some of it’s helpful, some of it’s outdated and some of it is just hallucinated.
One of the most common things you might have read is about saving a 20% deposit. While this was never a hard and fast rule, it’s also one that isn’t relevant for first time buyers in 2025. Since the start of the 2025/26 financial year (1 July), nearly all first home buyers can purchase a property with just a 5% desposit (sometimes as little as 2%) – and not have to pay LMI.
The difference between 5% and 20% is huge. For a $600k property, it’s $30,000 vs $120,000. For an $800k property it’s $40,000 vs $160,000.
With the value of properties growing, having a smaller savings target can be a huge benefit. So how does it work?
The myth of the 20% deposit
The goal of a 20% deposit is rooted in truth but it’s never been a do or die approach. Essentially, lenders in Australia felt more comfortable when applicants had saved 20% for their home. For years though, you could still get a home loan without this, it’s just that the lender would add LMI (lenders mortgage insurance) onto the loan.
The amount of LMI would change depending on the lender, the borrower and, most importantly, the deposit amount. Someone with a 10% deposit would pay more than someone with 18%, for example. This amount isn’t immediately payable, instead it’s added onto your mortgage so you could pay it off (and any accrued interest) over the next 30 years if you wanted to.
The purpose of LMI is to protect the bank, not you (no surprises there). It means the lender is insured from any shortfalls if you default on your loan and they need to sell your property quickly. If you still owed $500,000 and they sell your house for $480,000, Lenders Mortgage Insurance will cover the $20,000 shortfall.
What options are there first home buyers with small deposits?
Not sure how you can buy a home with a deposit less than 20%? Here are a few options.
First Home Loan Deposit Scheme
The First Home Loan Deposit Scheme has been in place for a few years now but since 1 July 2025 it’s been expanded.
Under the scheme, buyers taking out their first home loan are able to get a home loan with a deposit as small as five per cent. The government acts as guaranteeing the difference (in this case 15 per cent) of a standard down payment. Buyers still have to pay the remaining 15 percent, as they’re technically borrowing 95% of the property’s valuation from a lender.
A lot of the original limits on how many people could apply for the scheme have been lifted and it’s now available to all first-time buyers in the country, so long as you meet restrictions on earning income ($125k for an individual, $200k for a joint application.
Other limits exist, such as the value of the property you’re buying. For example, if you’re buying a home in Newcastle, Lake Macquarie or Sydney, the maximum value is $900,000, but in other areas of NSW (like Maitland or the Central Coast) has a limit of $750,000.
Family Home Guarantee
If you’re a single parent, you may be eligible for the Family Home Guarantee which means you can buy a property with just a 2% deposit.
Comparing how much you need versus a 20% deposit is huge. For a $600k property, it’s $12,000 vs $120,000. For an $800k property it’s $16,000 vs $160,000.
Like with the First Home Loan Deposit Scheme, there are restrictions. Some of these include the scheme only being open to Australian citizens who are earning $125,000 or less, and who are buying a home to live in (rather than an investment).
Guarantor Loans
With a guarantor loan, you can borrow 100% of the purchase price. A 20% deposit is secured against the guarantor’s property and 80% is secured against the property being purchased. 
Guarantor loans help the purchaser avoid paying lenders mortgage insurance but does come with risks for the guarantor. The guarantor is ultimately responsible for the loan should the purchaser stop paying the mortgage. Fortunately, guarantors are only liable to repay the amount they guarantee (usually 20%) and once that amount is repaid, they are released from further liabilities.
Who can act as a guarantor depends on your lender, but is normally restricted to family members.
Help To Buy
Although not officially launched, the Help To Buy scheme has been talked about on a federal level for a while now. On a state level, the Victorian HomeBuyer Fund and Western Australia’s HomeShare Scheme work in very similar ways.
In the two schemes above, the government acts as a guarantor allowing you to get a loan with a smaller deposit, however you still have to pay off the full loan.
With Help To Buy, the government covers the cost. You’ll still need at least a 5% deposit and the government will chip in up to 40% of the purchase price. The catch is that they own that share of your home, not you.
The advantage to this scheme is that you can get on the property ladder more quickly and your home loan, potentially only 55% of the purchase price, will be easier to pay off. However, when you come to sell the property, 40% of the sale price goes straight to the government.
Like with other schemes, limitations have been talked about, like a maximum wage. Should you go over this earning amount sometime in your career, you may be required to buy out the government’s share.
How we can help first time buyers
We’re a group of experienced, award-winning Newcastle mortgage brokers. We work with more than 50 lenders and can use our experience to help you get the best deal on your home loan. With something as important as a house purchase, it really does pay to use the (free) services of a professional. If you’d like to build a personalised plan to buying your first home, click here to get started.
