For many Sydney first-home buyers, saving a 20% deposit can be one of the biggest barriers to buying a home. The First Home Guarantee Scheme 2026 will help overcome the deposit barrier for those buyers who are eligible by allowing them to purchase with just a 5% deposit, without having to pay Lenders Mortgage Insurance (LMI).
The deposit scheme was expanded from 1 October 2025, removing income caps and waiting lists and increasing access to the scheme. If you are a first home buyer in Sydney considering a low-deposit home loan, knowing how the scheme works before house hunting will be helpful.
Below we will explain the 2026 eligibility requirements, the potential benefits, how to apply, and what you should consider before borrowing with a smaller deposit.
The First Home Guarantee Scheme 2026, now officially known as the Australian Government 5% Deposit Scheme, is designed to address deposit barriers. The scheme helps eligible first home buyers to purchase a home with a minimum 5% deposit, offering a government guarantee to an authorised participating lender.
The Australian Government provides a guarantee to the lender, allowing them to offer a home loan with a higher loan-to-value ratio (LVR) to the borrower. This means a first-time homebuyer can borrow up to 95% of the property’s value by making just a 5% deposit.
For example, if an eligible buyer purchases an $800,000 property with a 5% deposit of $40,000, they may borrow up to $760,000 through a participating lender, subject to the lender’s assessment and the Scheme’s requirements.
The buyer remains responsible for paying back the total amount of the mortgage loan, which includes the interest and other costs associated with the loan. The government’s guarantee safeguards the lender against possible loss but does not protect the borrower from their mortgage responsibilities.
For a first home buyer in Sydney, the practical impact of the scheme comes down to a few core benefits.
Eligible first-time buyers can contribute a minimum 5% deposit of the property’s total cost. It can reduce the time needed to save for a deposit compared with saving enough money to make a 20% deposit.
For instance, a 5% deposit on a $900,000 property is $45,000, compared with $180,000 for a 20% deposit. This does not imply that a 5% deposit scheme will make the property cheaper. It means you may be able to purchase without waiting to make a greater upfront payment.
The income caps were lifted from 1 October 2025. This means that your income cannot automatically disqualify you from accessing the scheme, supporting more Australians no matter what they earn.
This does not mean that income is ignored when accessing home loans. The participating lender will consider your income, expenses, debts, financial obligations, and capacity to pay off the loan.
The Lender Mortgage Insurance (LMI) is usually associated with high-LVR home loans whereby the borrower has a low amount of deposit. Under the Australian Government 5% Deposit Scheme, an eligible first home buyer does not pay LMI, subject to meeting the Scheme requirements and receiving approval through a participating lender.
A purchaser with limited deposits will avoid the extra cost of LMI and reduce the upfront amount needed to complete the purchase.
The expanded scheme has unlimited places for eligible buyers, rather than requiring applicants to compete for a limited number of available spots. This means buyers who are eligible can consider applying when they are financially ready instead of waiting for another round of places to open.
The scheme is not limited to one type of home. Those eligible for the scheme can buy a new or existing residential property that fits their lifestyle, location, and budget, including:
The property must meet the Scheme’s requirements and remain within the applicable location price cap.
Meeting the basic requirements is the first step, but there are separate first home guarantee eligibility conditions for you, the property and the home loan.
For NSW, the current property price cap for Sydney and the listed regional centres is $1.5 million, while the cap for other NSW areas is $800,000. Depending on the location and postcode of the property, the applicable cap can vary. The buyers are advised to use the official postcode search tool and confirm the applicable cap with their participating lender before making an offer.
The application process for the First Home Guarantee is integrated into the home loan process rather than being a separate application you make directly to the government. You have to apply through a participating lender who determines whether you are eligible, considers your home loan application, and then submits the scheme application.
For Sydney first home buyers, the process can be broken into four steps.
It is advisable to begin with reviewing the Australian Government 5% Deposit Scheme’s eligibility requirements and using the official online eligibility tool as an initial guide. It will provide an idea if the deposit, prior property ownership, residency status, and planned purchase meet the conditions of the scheme.
You cannot apply directly to Housing Australia for the First Home Guarantee. Rather, you have to apply via the participating lender, who will review your scheme eligibility, discuss with you the appropriate loan options, and process your loan application.
You may need to provide information and documents, including:
For buyers comparing a 5% deposit home loan, a mortgage broker in Sydney can help you understand your borrowing position and compare suitable loan options alongside the scheme requirements.
When the pre-approval is granted, you have 90 days to find a house and enter into a contract of sale. This means that you have the time frame within which to locate a house that suits you as well as the scheme requirements. Before making an offer, use the government’s handy tool to check the price cap for the location you want to buy. The tool is only a guide; confirm with your participating lender for the specific property.
When trying to figure out how much you can afford, obtaining pre-approval for a home loan before searching for your dream home will allow you to determine your borrowing capacity.
When the right house is selected and the contract of sale is signed, the participating lender will undertake the entire procedure of final approval. This will only happen if all requirements of the Scheme and the lender are met.
Following the completion of the transaction, it is important that you move into the house and fulfil the owner-occupier requirements of the scheme. It is important to note that the government guarantee is not for your loan payments or any other expenses related to owning the house.
The First Home Guarantee can reduce the deposit barrier for eligible buyers, but it does not reduce your responsibility for repaying the mortgage or covering the other costs of home ownership. Because a 5% deposit means borrowing a larger percentage of the property’s value, it’s important to consider the potential impact on your repayments and total interest costs.
Before buying, make sure your budget accounts for:
Before committing to a 5% deposit home loan, make sure the repayments fit comfortably within your budget. You can use a mortgage calculator to explore how different loan amounts, interest rates and loan terms could affect your potential repayments.
The First Home Guarantee Scheme 2026 can make entering Sydney’s property market more achievable for eligible first home buyers, but qualifying for the scheme is only the first step. You also need to understand how much you can comfortably borrow, what your repayments could look like and whether a 5% deposit is suitable for your financial circumstances.
Before applying, consider getting home loan pre-approval so you have a clearer idea of your borrowing capacity and can search for properties within a realistic budget. A mortgage broker can also help you compare suitable loan options and understand which participating lenders may be available to you.
Ready to explore your first home loan options? Speak with Active Mortgage & Mortgage to discuss your borrowing position, compare suitable home loan options, and find out whether the First Home Guarantee could work for your circumstances.
Q: What is the First Home Guarantee Scheme in 2026?
A: The First Home Guarantee Scheme is now officially called the Australian Government 5% Deposit Scheme. It allows eligible first home buyers to purchase a home with a minimum 5% deposit, with the Australian Government providing a guarantee to the lender. Eligible buyers can access the Scheme without LMI, subject to the Scheme and lender requirements.
Q: Who is eligible for the First Home Guarantee?
A: Generally, you must be at least 18, an Australian citizen or permanent resident, have a minimum 5% deposit, and be a first home buyer or not have owned property or land in Australia in the previous 10 years. You must also purchase an eligible property within the applicable price cap and intend to live in it as an owner-occupier. You still need to meet the participating lender’s own credit and loan approval criteria.
Q: How much deposit do I need for the First Home Guarantee?
A: Eligible first home buyers need a minimum 5% deposit. The scheme has a separate pathway for eligible single parents and legal guardians, who may qualify with a minimum 2% deposit.
Q: What is the First Home Guarantee property price cap in Sydney?
A: The current NSW price cap for Sydney and the listed regional centres is $1.5 million, while other NSW areas have an $800,000 cap. Because the applicable cap can depend on the property’s location and postcode, buyers should confirm the exact price cap with their participating lender before committing to a property.
Q: Do I have to pay LMI with the First Home Guarantee?
A: Eligible buyers using the Australian Government 5% Deposit Scheme can purchase without Lenders Mortgage Insurance (LMI), provided they meet the Scheme requirements and receive approval through a Participating Lender.
Q: Is there an income limit for the First Home Guarantee in 2026?
A: No. Income caps were removed from the scheme from 1 October 2025. However, this doesn’t mean income is ignored when applying for a home loan. Your Participating Lender will still assess your income, expenses, debts and ability to service the proposed mortgage.
Q: How do I apply for the First Home Guarantee?
A: You cannot apply directly to Housing Australia. You need to apply through a participating lender as part of your home loan application. The lender assesses your eligibility, guides you through available loan options, and submits the scheme application. Once pre-approved, you generally have 90 days to find a home and sign a contract of sale.
Q: Does First Home Guarantee eligibility guarantee home loan approval?
A: No, meeting the scheme’s eligibility requirements does not guarantee mortgage approval. You must also satisfy the Participating Lender’s credit policy and loan approval criteria. The lender will assess your overall financial position and whether you can afford the proposed home loan.
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