If the deposit your lender wants feels years away, the Home Guarantee Scheme is worth understanding. It is a federal programme, run by Housing Australia, that lets eligible buyers purchase with a smaller deposit and skip Lenders Mortgage Insurance. It works through a government guarantee behind part of the loan. Your own contribution still comes from your savings.
What the guarantee actually does
Normally, when the lender sees a high loan-to-value ratio, it may charge LMI to cover its risk, as we covered in our piece on Lenders Mortgage Insurance. Under the scheme, the government guarantees part of an eligible buyer's home loan. The lender's risk is covered by that guarantee, so eligible buyers can borrow with smaller savings and avoid LMI entirely. You still take out a normal loan and repay all of it. The guarantee stands behind the application rather than working like a grant, and no cash lands in your account.
The parts of the scheme
The scheme has run as a few separate guarantees aimed at different buyers:
- A guarantee for first-home buyers purchasing with a low deposit.
- A guarantee for regional first-home buyers.
- A guarantee for single parents and some single guardians, with a lower deposit requirement.
Which guarantees exist, the minimum deposit for each, and the number of places available are set by the government and have changed several times. Housing Australia publishes the current list and rules.
The fine print that decides if you qualify
A guarantee place is not automatic. Expect conditions like these, with the specifics set by Housing Australia:
- Eligibility tests: typically first-home buyer status (or the relevant category), citizenship or residency, and sometimes an income limit.
- Property price caps: a maximum purchase price that varies by city and region, so the same budget might qualify in one area and not another.
- Owner-occupier only: these guarantees are for homes you live in, not investments.
- Limited places: there can be a cap on how many buyers use the scheme in a given period.
Because the caps and rules move, check the current figures on Housing Australia before you count on a place.
The trade-off worth naming
Skipping LMI with a small deposit gets you in sooner. If you expect prices to keep moving, buying earlier may outweigh the extra interest. A smaller deposit also means a larger loan, more interest over its life, and less of a buffer if values dip, so the scheme removes a barrier without settling the maths for you. Run your repayments using the rate your lender tests, then compare that with a purchase using a larger deposit.