Buying a home with a 5 percent deposit home loan

Yes, you can buy a home with a 5 percent deposit home loan in Australia, usually through a government guarantee that lets eligible first home buyers borrow with a smaller deposit and without paying Lenders Mortgage Insurance. The trade off is a larger loan and bigger repayments, so whether it suits you depends on your circumstances and lender criteria.

This guide explains how buying a home with a 5 percent deposit works, who may qualify, what it costs, and the steps to take. Figures here come from the Australian Securities and Investments Commission (ASIC) Moneysmart. Rates, places, and eligibility change, so always check current scheme criteria before you decide.

How a 5 percent deposit home loan works

Most lenders look for a 20 percent deposit on the price of a property. A 20 percent deposit lets you avoid paying Lenders Mortgage Insurance (LMI), which is insurance that protects the lender, not you, if you cannot repay the loan.

When you borrow more than 80 percent of a property’s value, the lender generally adds LMI. The amount you borrow as a share of the property value is called the loan-to-value ratio (LVR). A 5 percent deposit means an LVR of about 95 percent, which would normally trigger LMI. For a fuller explanation, see What is lvr first home buyer.

A government guarantee changes this. Under the Australian Government 5 percent deposit scheme, the government guarantees part of the loan so an eligible buyer can purchase with as little as a 5 percent deposit and avoid LMI. The scheme can support first home buyers, buyers in regional areas, and single parents or guardians. It does not lend you money or pay your deposit; it stands behind part of your loan so the lender does not require mortgage insurance.

Who may qualify

Eligibility for the government 5 percent deposit scheme is set by the scheme rules, not by Finance Lab. The scheme is aimed at first home buyers, with separate support for buyers in regional areas and for single parents or guardians. There is a property price limit that varies by location, and it is reviewed over time. From 1 October 2025 the scheme removed its income tests and its previous limit on the number of places, so neither restricts who can apply now.

Because the criteria change, the right move is to check the current rules and confirm your eligibility with a lender or broker before you make an offer. Whether you qualify, and whether a smaller deposit suits you, depends on your circumstances and lender criteria.

What it costs to buy with a smaller deposit

A smaller deposit is not a smaller purchase. You still buy the same home, so a 5 percent deposit means you borrow more and your repayments are larger than they would be with a 20 percent deposit. You also still need to cover the upfront buying costs on top of the deposit.

Stamp duty is one of the larger upfront costs. It is typically payable within 30 days of settlement and the amount varies by state and territory. First home buyer concessions may reduce or remove it in some cases, depending on where you buy and your circumstances.

Comparing lenders is worth the effort. A home loan rate even 0.5 percent lower could make a meaningful difference over the life of the loan, so it pays to look at more than one option before you commit. To see what your repayments might look like at different loan sizes, try the borrowing power calculator.

Saving the deposit and the buffer

Even with a 5 percent deposit pathway, lenders want to see that you can manage the loan. Saving a small amount regularly adds up; for example, putting aside 20 dollars a week can build to over 1,000 dollars in a year. A steady savings record also helps show a lender you can meet repayments.

It is also sensible to keep a separate buffer for the unexpected. A common target for an emergency fund is enough to cover three months of expenses, so you are not relying on the loan if something comes up after you move in.

Steps to buy with a 5 percent deposit

The path to buying is much the same whether your deposit is 5 percent or 20 percent. Confirm your scheme eligibility early, because it shapes how much deposit you need. If you want a deeper walkthrough of getting loan-ready, see Home loan pre approval first home buyer.

Is a 5 percent deposit the right move

Buying sooner with a smaller deposit can help you enter the market without waiting years to save 20 percent, and avoiding LMI under a government guarantee can save a real upfront cost. The trade off is a larger loan, larger repayments, and less equity at the start, which leaves less buffer if property values move. There is no single right answer; it depends on your circumstances, the property, and lender criteria.

Talk to the team at Finance Lab

If you want to know whether a 5 percent deposit pathway could work for you, the team at Finance Lab can walk you through your options, check current scheme criteria, and compare lenders. Get in touch and we will help you understand what may be possible for your situation.

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