Last Updated: 10th April, 2024

If you’re a first-home buyer in Australia, there are ways you can secure a home with a 5% deposit. You could:

  • Apply for any of the guarantees under the Home Guarantee Scheme
  • Use a shared-equity scheme
  • Apply with a lender that approves 95% Loan-to-Value Ratio (LVR) home loans
  • Use a guarantor
An infographic showing four ways to secure a home in Australia with a 5% deposit.

Home Guarantee Scheme

The Home Guarantee Scheme is the Australian Government’s initiative to support eligible homebuyers who want to buy a home with a smaller deposit. The greatest benefit of this scheme is you don’t need to pay Lenders Mortgage Insurance (LMI). LMI is usually applicable when your deposit is less than 20% of the property price.
There are three types of guarantees under this scheme:

Each of these schemes has its own eligibility requirements and property price caps. Please read them carefully to see if you qualify, or you can contact the experts at 1300 889 743 for more information.

Shared-Equity Scheme

Shared-equity schemes are another way to qualify for a 5% deposit without paying LMI. These arrangements involve an equity partner, which can be the lender or a third-party investor, like the government. They typically contribute a portion of the property’s purchase price in exchange for an ownership interest.

Some popular shared-equity schemes in Australia are:

  • Help to Buy Scheme: This scheme allows eligible homebuyers to purchase a home with a deposit of at least 2% of the property purchase price, through an equity contribution from the federal government.
  • NSW’s Shared Equity Home Buyer Helper: The NSW Government has its own shared-equity scheme that helps eligible applicants buy with at least a 2% deposit. The scheme is available to single parents with dependent children, single people aged 50 or above, and first-home buyers who are employed as key workers.
  • Victorian Homebuyer Fund: This shared-equity scheme helps eligible applicants buy a home with at least a 5% deposit. The Victorian Government will make a financial contribution toward the purchase of the home in exchange for an equity share in the property.

Lenders Who Offer 95% Home Loans

At Home Loan Experts, we have lenders on our panel who let you borrow up to 95% of the property value if you’ve saved between 5% and 10% of the value as a deposit. First-home buyers can even include the First Home Owners Grant as part of the deposit.

Lenders are favourable to those who have a stable job and earn regular income. Waived LMI home loans are also available for certain professionals.

Guarantor Home Loans

A guarantor home loan is a great option if you have parents who own property in Australia. You don’t even need a 5% deposit if your parents can act as guarantors on your home loan. As a guarantor, your parents will put up their own home as security on your home loan.

There are risks and benefits involved with getting a guarantor or being a guarantor on a home loan. It’s best to consult with an expert to see if a guarantor home loan is a viable option for you.

Is It Worth Buying With A 5% Deposit?

Low-deposit home loans are not without risks. On the positive side, however, a 5% deposit home loan can let you buy your property sooner.

You can become a homeowner sooner, even with a smaller deposit, making it an attractive option for those struggling to save for a deposit.Some lenders may charge higher interest rates for low-deposit home loans, as they perceive them as riskier investments.
Various government schemes are available to help you buy a home without paying Lenders Mortgage Insurance (LMI), reducing upfront costs.Government assistance schemes often have limited places available, and there are price caps that can restrict your choice of properties.
You can start building wealth and equity in a property, potentially benefiting from appreciation over time.If property prices decline, there is a risk of falling into negative equity, where you owe more on your mortgage than the property is worth.

Do I qualify?

Generally speaking, you’ll need:

  • A good income: Lenders tend to be quite strict when assessing your means of paying off a 5% deposit home loan, otherwise known as your ‘serviceability ratio’.
  • Stable employment history: Although there are exceptions, this usually means that you’ve been working in the same job for the past 6 to 12 months.
  • A clear credit history: Your credit file must have minimal credit enquiries and be free of defaults. As a general rule, credit cards, rent and bills like utilities and mobile plans need to have been paid on time for the past 6 months.
  • Strong asset position: Lenders will assess your income to asset position relative to your age. It’s assumed, for example, that if you’ve been working full time for a few years that you’ll have a car and a decent amount of savings relative to your income.
  • Little to no existing debt: Having more than one credit card and/or personal loans is a red flag for most lenders.
  • Proof of 5% in genuine savings: This is usually in the form of consistent deposits into a savings account over a period of 3 months. There are some exceptions to this though.
  • Non-traditional property or location: Banks are pretty conservative when it comes to property located in high rise units and small or regional. There are other types of ‘unusual property’ that may see your home loan application declined.

Want to know if you qualify for a 5% deposit home loan?

Fill in this free and easy assessment form or call us directly on 1300 889 743 and let us help you find the right home loan for your needs.

Frequently Asked Questions

How Much Can I Borrow? add_circle remove_circle

With a 5% deposit, you can borrow up to 95% of the property value.

When you’re borrowing more than 80% of the property value, LMI is usually applicable.

Is A 5% Deposit All I Need To Buy A Property? add_circle remove_circle

Apart from the 5% deposit, you’ll need to cover extra costs associated with the purchase of the property.

These costs include home loan application (if applicable), mortgage registration and conveyancing fees, as well as such Government costs like stamp duty and a transfer fee charged when registering your name on the property title.

You can estimate the costs of buying a property in your state by using the home purchasing costs calculator.

Can I Avoid Paying LMI? add_circle remove_circle

Yes, there are ways you can avoid paying LMI.

A Lenders Mortgage Insurance (LMI) premium is usually charged by a lender when you borrow more than 80% of the purchase price.

LMI premiums can vary from lender to lender because each one has its own rate brackets.

For example, if you had a 5% deposit on a $600,000 property ($30,000), you could be paying more than $28,000 in LMI.

Fortunately, there are ways you can avoid paying LMI. Certain eligible professions can get waived. Even choosing the right lender can get you a lower LMI.

What If I’m Not Eligible For Reduced LMI? add_circle remove_circle

Luckily, some lenders may allow you to add or ‘capitalise’ your mortgage insurance premium meaning you don’t need to cover this cost upfront, saving you thousands of extra on top of your 5% deposit with a 98% home loan.

You can usually capitalise LMI for loans up to $1,000,000!

If you don’t qualify for a 5% deposit home loan plus LMI, we can still compare lenders for you to find you the most competitive deal based on your circumstances.

The LMI calculator will give you some idea of how much you could save by going with the right lender.

As a mortgage broker, we can compare lenders for you so you’re getting a good deal, including a competitive LMI premium.

Call us on 1300 889 743 or complete our free assessment form to find out how we can help you save thousands on your home loan.

Can The 5% Deposit Come From Anywhere? add_circle remove_circle

Not usually.

Being able to save the deposit yourself with regular deposits into a savings account over a period of 3 months is a direct reflection of your ability to make monthly mortgage repayments.

This is known as genuine savings and it’s a requirement for most lenders.

There are a number of other things that meet this genuine savings requirement, including:
Your own savings or term deposit.

  • A gifted deposit from your parents.
  • Inheritance.
  • Tax refunds.
  • Sales of assets such as your car or shares.
  • First Home Owners Grant and other first home buyer incentives.
  • First Home Saver Accounts.

Please complete this free assessment form and one of our brokers can properly assess your situation to see if you qualify.

What Strategies Can I Use To Save A 5% Deposit? add_circle remove_circle

Although it doesn’t sound like much, saving a 5% deposit can be difficult with property prices continuing to rise and having to budget around paying bills, rent, credit cards or any personal or HECS/HELP debt you may have.

Give yourself a better shot at saving by:

  • Setting up savings goals: This not only includes a long term goal but short and medium term goals as well. Regularly reviewing your progress is essential.
  • Making a plan and keeping a timeframe in mind: Have a good look at your incomings and outgoings and be realised about how much you can put away on regular basis. Based on this savings.
  • Having a tiered approach to saving: Start off your savings small and then progressively save more every week or month until you reach your savings goal and get you in the habit of budgeting.

Check out the ‘8 Things That Will Trick You Into Saving’ infographic to discover what the best savers do.

What If I Have A Bad Credit History? add_circle remove_circle

Having just one default on your credit file can stop you from borrowing more than 80% of the property value let alone allow you to qualify for a 5% deposit home loan.

In order to improve your chances of approval for a 5% deposit home loan:

  • You may want to look at reducing your credit card limit to what you actually use.
  • Pay off any small debts.
  • Pay your bills and debts on time, every time for a period of 6 months.

Depending on the size of your paid defaults and the rest of your situation, you may qualify for a 5% deposit home loan with a specialist lender.

Check out the bad credit home loans page for more information.

Do you qualify for a 5% deposit home loan?

Speak to an experienced mortgage broker that specialises in 5% deposit home loans.

It can sometimes be difficult to get approved but with a professional to help you present a strong case you’re in with a better chance.

Call 1300 889 743 or fill in our free assessment form and we can tell you which home loan option is right for you.