The 5% Deposit Scheme in 2026: eligibility, price caps and how it works

Saving a 20% deposit is one of the biggest hurdles for first home buyers, especially while paying rent. The Australian Government 5% Deposit Scheme is designed to shorten that wait. It lets eligible buyers purchase with a much smaller deposit and without paying lenders mortgage insurance (LMI), which can save a significant amount upfront. This guide explains how the scheme works in 2026, who can use it, the property price caps and how it fits with state help such as Victoria’s stamp duty savings.

The rules for government schemes change from time to time, so treat this guide as a general overview. Before you sign a contract, we check the latest settings against your situation.

What is the 5% Deposit Scheme?

The Australian Government 5% Deposit Scheme is a home guarantee scheme administered by Housing Australia. Normally, if your deposit is below 20% of the property’s value, the lender asks you to pay LMI, a one-off premium that protects the lender (not you) if the loan goes bad. Under the scheme, the government guarantees part of your loan to the lender instead. Because the lender is protected by that guarantee, it does not charge you LMI.

In practical terms, the scheme allows:

• Eligible first home buyers to buy with a deposit of as little as 5%.
• Eligible single parents and legal guardians to buy with a deposit of as little as 2%.

You still take out an ordinary home loan with a participating lender and repay it in full. The guarantee is not a grant or a gift, and it does not reduce the amount you owe. What it does is remove the LMI cost and let you enter the market sooner with a smaller deposit.

What changed from 1 October 2025

If you looked into government deposit help a few years ago, some of what you read may no longer apply. From 1 October 2025, the settings were simplified and expanded into one scheme:

• One scheme. The Australian Government 5% Deposit Scheme now covers first home buyers, with a separate 2% deposit option for eligible single parents and legal guardians.
• Unlimited places. There is no longer a cap on the number of guarantees available each year, so you do not need to race for a spot.
• No income test. Eligibility no longer depends on how much you earn, although lenders still assess whether you can afford the loan.
• Higher property price caps. The maximum property price you can buy under the scheme was lifted in most areas.

Who is eligible?

Eligibility is set by the government and checked by the participating lender when you apply. In general terms, you need to meet the following conditions.

First home buyers (5% deposit)

• Be an Australian citizen or permanent resident aged 18 or over. Couples can apply together if both meet the criteria.
• Live in the property as your home. The scheme is for owner-occupiers, not investors.
• Not have owned property in Australia in the previous 10 years, whether a home, investment property or land.
• Have a deposit of at least 5% of the property’s value.
• Buy a property that is under the price cap for its location.

Single parents and legal guardians (2% deposit)

The 2% option is aimed at single parents and legal guardians who have at least one dependent child in their care. Importantly, you do not need to be a first home buyer to use it. Someone who has owned a home before, for example before a separation, may still be eligible, provided they meet the other conditions, such as citizenship or permanent residency, living in the property and not currently owning a home. The same property price caps apply.

Because the detailed rules sit with the government and each lender applies them to your paperwork, we confirm eligibility before you start house-hunting in earnest.

Property price caps

Each location has a maximum property price you can buy under the scheme. Caps are generally higher in capital cities and large regional centres, where prices are higher, and lower elsewhere. For Victoria, the current caps are:

The cap applies to the value of the property. If you are building, it generally applies to the combined value of the land and the building contract. Caps are reviewed from time to time, so check the current figure for your area, or ask us to, before you set your budget. A property priced above the cap cannot be bought under the scheme, even if your deposit is larger.

How the guarantee works in practice

Here is a simple way to picture it. Say you are buying a home and have saved a 5% deposit. Without the scheme, a lender would usually charge LMI because your deposit is below 20%. Under the scheme, the government guarantee covers the gap for the lender, so no LMI is payable. You borrow the remaining 95% (or 98% under the 2% option) and make normal repayments.

A few points are worth understanding before you rely on the scheme:

• Your loan is larger. A smaller deposit means borrowing more, which means higher repayments and more interest over the life of the loan. Make sure the repayments are comfortable, not just approvable.
• You still need money for costs. Stamp duty (if it applies), conveyancing, inspections, government fees and moving costs all come on top of the deposit.
• Lenders still set their own criteria. The guarantee removes LMI but does not guarantee approval. Your income, expenses, debts and credit history still matter.
• You must live in the home. If you move out and rent the property, the guarantee may no longer apply, so talk to your lender before making changes.

Our borrowing power calculator and our guide on how much you can borrow can help you test whether a smaller deposit and a larger loan will fit your budget.

Combining the scheme with state help

The 5% Deposit Scheme is a federal program, so it can often be used alongside support from your state or territory. Each state and territory has its own rules, and the benefits can be substantial when they are combined.

In Victoria, for example:

• Stamp duty exemption and concession. Eligible first home buyers pay no stamp duty on homes valued up to $600,000 and receive a concession on homes valued up to $750,000. You can estimate your duty with our stamp duty calculator.
• First Home Owner Grant. A grant is available to eligible first home buyers who buy or build a new home, subject to a value cap and other conditions.

Put together, a Victorian first home buyer purchasing under $600,000 might use the scheme to avoid LMI, pay no stamp duty and, if the home is new, receive the First Home Owner Grant as well. Each program has its own eligibility rules, so it is important to check them one by one rather than assuming they all apply. Our first home buyer guide for Victoria covers the state side in more detail.

How to apply

You cannot apply to the government directly. The scheme is only available through participating lenders, which include major banks and a range of smaller banks, credit unions and other lenders. Many buyers apply through a mortgage broker, who can compare participating lenders and handle the paperwork. The usual steps are:

1. Check your eligibility. We look at your residency, property history, deposit and the price range you are targeting.
2. Compare participating lenders. Rates, fees, features and credit policies still vary, so the scheme lender you choose matters.
3. Get pre-approval. Your application is assessed by the lender, and the scheme guarantee is arranged as part of the process.
4. Find a property under the cap. Make sure the price fits the cap for the area and that the property type suits the lender.
5. Formal approval and settlement. The lender values the property, issues formal approval and your loan settles as normal.

You can read more about how we help on our first home loans page.

Things to weigh up

The scheme is a genuine help for many buyers, but it is not automatically the best choice for everyone. It may be worth comparing other routes too:

• A family guarantee, where a parent uses equity in their home as extra security, can also avoid LMI and has no property price cap.
• Waiting and saving longer reduces the loan size and the interest you pay, although prices may move in the meantime.
• Paying LMI with a lender outside the scheme can suit buyers who need a property above the cap.

We lay these options out side by side, with the real costs of each, so you can choose the one that fits your plans.

Check where you stand

The 5% Deposit Scheme can bring home ownership forward by years, but the details matter: eligibility, price caps, the lender you choose and how it fits with state help. Rules change, and we check the latest settings for every client. Book a free chat with our team and we will work out whether the scheme suits you and what your next steps are. There is no cost for most home loans, and no obligation.

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