How much can the First Home Guarantee save me in LMI?

It depends on the property value and your deposit, but for a typical Melbourne first home buyer with a 5% deposit, the LMI saving usually sits between $10,000 and $25,000. On a $700,000 property with a 5% deposit, LMI from a major lender would typically cost around $20,000-$25,000. With the First Home Guarantee that's avoided entirely. The saving can be larger again for higher property prices.

Who is eligible for the First Home Guarantee?

You must be an Australian citizen, at least 18, a genuine first home buyer who intends to live in the property as your primary residence, and meet income caps (currently around $125,000 for singles and $200,000 for couples) and property price caps that vary by location. Always check the current eligibility rules on the Housing Australia website.

What is the property price cap for Melbourne under the First Home Guarantee?

The property price cap for Melbourne metropolitan areas and large regional centres has been around $800,000 (current at time of writing — verify on the Housing Australia site for the figure that applies to your purchase). Regional Victoria has a lower cap. The caps are reviewed and sometimes adjusted at the start of each financial year.

What's the difference between the First Home Guarantee and the Victorian Homebuyer Fund?

The First Home Guarantee (federal) only guarantees your loan — the government takes no equity in your home. The Victorian Homebuyer Fund (state) is a shared equity scheme — the Victorian government contributes up to 25% of the purchase price in exchange for an equity stake in the property. You pay them back their share when you sell or refinance, including any capital growth on their share. FHBG is simpler and keeps 100% of any capital growth with you. The VHF lets you buy a more expensive property with the same deposit but you share future gains.

Can I use the First Home Guarantee with the First Home Super Saver Scheme?

Yes. They're complementary federal schemes. The First Home Super Saver Scheme lets you save your deposit inside super at concessional tax rates and release it for a home purchase. The First Home Guarantee then lets you use that deposit with as little as 5% down. Used together they can meaningfully accelerate getting into the market — but the rules of each must be followed carefully.

First home buyer guide · 7 min read

5% deposit, no LMI: How the First Home Guarantee actually works in 2026

Q: What is the First Home Guarantee?

The First Home Guarantee (FHBG) is a federal government scheme administered by Housing Australia that lets eligible first home buyers purchase a property with as little as a 5% deposit and avoid Lenders Mortgage Insurance. The government guarantees up to 15% of the property value to the lender, removing the LMI requirement that normally applies when you borrow more than 80% of the property's value.

By Adam O'Neill, Principal Financial Adviser & Mortgage Broker Published 21 May 2026

In one paragraph

The First Home Guarantee is a federal government scheme that lets eligible Melbourne first home buyers purchase a home with just a 5% deposit and skip Lenders Mortgage Insurance entirely. Housing Australia guarantees the gap between your 5% and a standard 20% deposit, which removes the LMI requirement and can save you $10,000–$25,000+ in upfront costs. It's not free money — but it is real money you don't have to pay, and it works alongside the First Home Super Saver Scheme. Places are limited, income and property price caps apply, and there are two other related schemes (Victorian Homebuyer Fund and Help to Buy) worth knowing about.

Almost every Melbourne first home buyer I sit down with asks some version of the same question: "Is there a way I can buy without saving a 20% deposit?"

Yes. The federal government has been running a scheme since 2020 — currently called the First Home Guarantee — that does exactly that. The mechanics are widely misunderstood, partly because the scheme has been renamed twice and partly because there are now three overlapping "low-deposit" programs at federal and state level. Here's the honest version.

What the First Home Guarantee actually is

The First Home Guarantee (FHBG) is administered by Housing Australia (the federal corporate entity formerly known as NHFIC). Eligible first home buyers can buy a property with a 5% deposit instead of the standard 20% — and the lender will not require Lenders Mortgage Insurance (LMI).

The way it works under the hood: when you borrow more than 80% of a property's value, lenders normally require LMI to protect themselves if you default. LMI is a one-off premium added to your loan that can easily run into tens of thousands of dollars. Under the FHBG, the federal government guarantees up to 15% of the property's value to the lender. From the lender's perspective, the risk profile of your loan now looks like an 80% loan — so the LMI requirement disappears.

Important: you still borrow 95% of the property's value. The government doesn't lend you money, doesn't take any equity in your home, and doesn't subsidise your interest rate. Your repayments are the same as any other 95% loan, just without the LMI cost bolted on top.

How the numbers actually look

Worked example — Melbourne first home buyer

Property price: $700,000 (two-bedroom apartment in inner Melbourne)
Your deposit (5%): $35,000
Loan amount (95%): $665,000
LMI without the First Home Guarantee: Roughly $20,000–$25,000 added to your loan (varies by lender)
LMI with the First Home Guarantee: $0
Saving: $20,000–$25,000 in upfront costs (or in additional interest if you'd capitalised it into the loan)

That's the real magnitude of the win. You're not getting a cheaper loan — you're skipping a tax that high-LVR borrowers normally pay.

Who qualifies (the eligibility test)

You must:

Be an Australian citizen (some recent expansions to permanent residents are being implemented — check current rules).
Be at least 18 years old.
Be a genuine first home buyer, or someone who hasn't owned property in Australia for at least 10 years.
Earn under the income cap: roughly $125,000 a year for singles and $200,000 a year for couples combined (verify current figures on Housing Australia's site — these get reviewed annually).
Buy a property at or below the price cap for the location.
Intend to live in the property as your principal place of residence (it's not an investment-property scheme).
Be applying through one of the 35+ participating lenders on Housing Australia's panel — including all four major banks, mutual banks, and several specialist lenders.

Melbourne property price caps

The price cap is the most common reason an otherwise-eligible buyer gets caught out. As I'm writing this:

Melbourne metropolitan area + large regional centres: roughly $800,000
Regional Victoria: roughly $650,000

These figures are indicative — they get reviewed and sometimes adjusted at the start of each financial year. Always check the current property price caps on Housing Australia's website before getting your hopes up on a specific property.

The practical implication for Melbourne: the cap effectively rules out most standalone houses in inner and middle suburbs. Townhouses, units, and apartments are usually within reach. New-build house-and-land packages in the outer growth corridors are often within reach. Cardinia, Wyndham, Whittlesea, Hume — all very doable.

How to apply (the process)

Get pre-approval with a participating lender. You can't apply for the scheme directly — it's applied for through your lender as part of your loan application. This is where a broker helps: I'll match you with a lender that has FHBG places available and a competitive rate.
Reserve a place. Once your lender confirms you're eligible, they reserve a place in the scheme on your behalf with Housing Australia. There's a limited number of places each financial year — they can run out before the year ends.
Find a property within the cap and within 90 days of place reservation.
Settle. The scheme guarantee gets formalised at settlement. From this point on, your loan looks like any other home loan — you just don't have LMI.

Common mistakes I see

Banking on a place that's already gone. Reservations are made in real time. By June, places at popular lenders are usually exhausted. Apply early in the financial year if possible.
Underestimating other costs. The scheme saves you LMI. It doesn't reduce stamp duty, conveyancing, building inspections, lender fees, or moving costs. Budget another 2–4% of the purchase price for these.
Buying just over the cap. Many buyers find a property they love at $810,000 and try to negotiate down to the cap — sometimes that works, sometimes the vendor walks. Have a clear "won't pay more than $X" line before you start looking.
Forgetting about Vic stamp duty concessions. Victorian first home buyers also get stamp duty concessions or full exemptions up to certain property prices. These stack with the FHBG and can save tens of thousands more.
Not combining with the First Home Super Saver Scheme. The FHSS lets you save your deposit inside super at concessional tax rates. Using FHSS to build your 5% deposit, then FHBG to skip LMI, is one of the most effective wealth-building moves available to a young high-earner.

The two other "5% deposit" schemes worth knowing

If you don't qualify for the FHBG — or even if you do — these alternatives may suit:

Scheme	Who runs it	How it works	Best for
First Home Guarantee	Federal (Housing Australia)	5% deposit + government guarantees the LMI gap. Government takes no equity.	First home buyers within the price and income caps who want to retain 100% of capital growth.
Victorian Homebuyer Fund	State (VIC government)	5% deposit + Victorian government contributes up to 25% of the purchase price in exchange for an equity stake. You buy them out later.	Buyers who can't otherwise afford the property they want; willing to share future capital growth with the state.
Help to Buy	Federal (newer)	Shared equity scheme. Federal government contributes up to 30–40% of purchase price for new/existing homes.	Lower-income earners; rolling out gradually — check current availability.

The right choice depends on your income, your borrowing capacity, and how you feel about sharing future capital growth in your home with a government. There's no single best answer — it's a real conversation worth having before you commit.

Want to know if you qualify — and which scheme is right for you?

A free 45-minute chat with me. We'll run the numbers on your borrowing capacity, the schemes you qualify for, and your best path into the market. No fee, no obligation.

Book a free chat

Frequently asked questions

What is the First Home Guarantee?

A federal scheme that lets eligible first home buyers buy with a 5% deposit instead of 20% — and skip Lenders Mortgage Insurance — because the government guarantees the gap.

How much can I save in LMI?

Usually $10,000–$25,000 for a typical Melbourne first home buyer. The exact figure depends on property price, loan amount, and lender. On a $700,000 property with a 5% deposit, the saving is usually around $20,000–$25,000.

Who's eligible?

Australian citizens, at least 18, genuine first home buyers (or no property ownership in the last 10 years), under the income caps ($125k single / $200k couple, indicative), buying within the property price cap, intending to live in the home. Verify all current criteria on Housing Australia's website.

What's the Melbourne property price cap?

Around $800,000 for Melbourne metro and large regional centres at time of writing; around $650,000 for regional Victoria. These get reviewed annually — check the current caps on Housing Australia.

What's the difference between the FHBG and the Victorian Homebuyer Fund?

FHBG (federal) guarantees your loan — the government takes no equity. VHF (state) is shared equity — the Victorian government contributes up to 25% of the purchase price and takes an equity stake. You keep 100% of growth under FHBG; you share growth under VHF.

Can I combine the FHBG with the First Home Super Saver Scheme?

Yes. They're designed to work together. Save your deposit inside super tax-effectively via FHSS, then use FHBG to buy with as little as 5% down. Combining them is one of the most powerful moves a young Melbourne professional can make.

About the author

Adam O'Neill is the Principal Financial Adviser and founder of Legacy Financial Planning Pty Ltd. He holds his own Australian Financial Services Licence (AFSL 519446) and is accredited as a mortgage broker through Connective (Australian Credit Licence 389328), with a panel of 70+ lenders. Based in Richmond, Melbourne, he works with first home buyers, families and business owners across Melbourne's inner east.

To check if the First Home Guarantee — or any of the related schemes — is right for your situation, contact Adam directly at info@legacy.net.au or 0414 225 435, or book a free chat.

Sources & further reading

General Advice Warning & Credit Assistance Disclosure: The information in this article is general in nature and has been prepared without taking into account your personal objectives, financial situation or needs. Eligibility figures (income caps, property price caps, place numbers) are indicative and subject to change — always verify current figures on Housing Australia's website. Before making any decision about a financial product or home loan, consider obtaining personal financial advice and credit advice. Legacy Financial Planning Pty Ltd holds Australian Financial Services Licence 519446. Credit assistance is provided as a credit representative authorised under Connective Credit Services Pty Ltd, Australian Credit Licence 389328.