How to build your home with a 5% deposit scheme from the Australian Government

Getting into your first home may feel like an impossible challenge, but the government is making it easier with its First Home Guarantee scheme. Designed to help eligible buyers build a home with a lower deposit, this government-backed scheme allows first home buyers to purchase a home sooner without paying lenders mortgage insurance. If you’re looking to build your first home, understanding how the 5% deposit scheme works can help you take the next step with confidence.

How does building with a 5% deposit actually work?

Building with a 5% deposit is made possible through the Australian Government’s deposit scheme, which provides a government-backed guarantee on part of your home loan. This means eligible first home buyers can build a home with a minimum 5% deposit, while the Australian Government guarantees up to 15% of the property value. 

As a result, buyers can secure a home loan without needing a larger deposit or paying lenders mortgage insurance, helping them enter home ownership sooner.

What are the real financial advantages of using a 5% deposit scheme?

According to Mark Polatkesen, Carlisle Homes’ in-house financial specialist, The First Home Guarantee Scheme, which is administered by Housing Australia, helps first homebuyers, single parents and those in regional areas build or buy their own home with a very low deposit, while avoiding the Lenders Mortgage Insurance usually associated with purchases above an 80 per cent loan-to-value ratio.

Using a 5% deposit scheme can offer several financial advantages for first home buyers, including:

• The ability to build a home with a minimum 5% deposit, reducing upfront savings required
• No need to pay lenders mortgage insurance, saving thousands of dollars
• Improved cash flow management, with more funds available for other upfront costs
• Greater certainty when budgeting through fixed-price building contracts
• The opportunity to enter home ownership sooner rather than waiting to save a larger deposit

Beyond the benefit of a low deposit, eliminating mortgage insurance can be a huge cost saver. As an example, the cost of mortgage insurance on a purchase price of $800,000 with a five percent deposit usually ranges from around $30,000 to $35,000. This fee is waived under the scheme.

“Another benefit for those buying through the scheme is that lenders will also apply a lower interest rate as these are backed by the government by way of guarantee. The Westpac rate at 95 percent is 7.00 percent, however this reduces to 6.30 percent under the First Home Guarantee Scheme – and this lower rate also improves your borrowing power,” Polatkesen says.

What are the key steps to securing your place in the scheme and starting your build?

Building your first home with a 5% deposit involves a clear application process that brings together eligibility checks, lender approval, and build planning. While the Australian Government deposit scheme helps reduce the upfront deposit required, first home buyers still need to follow specific steps to secure a place in the scheme and move forward with confidence.

Check your eligibility early

Start by confirming that you meet the eligibility criteria for the Australian Government 5% deposit scheme. This includes checking income caps, household requirements, and whether you’re eligible as a first home buyer. Because the scheme has a limited number of places, confirming eligibility early can help you plan your next steps with greater certainty.

Speak with a participating lender

Applications for the deposit scheme are made through a participating lender. Your lender will assess your home loan application, confirm whether you can access the scheme, and determine how much you can borrow based on your circumstances.

Understand the property price caps for your area

Property price caps apply under the scheme and vary depending on location. Knowing the relevant cap for where you plan to build can help you align your budget, land choice, and home design before progressing too far.

Choose your home and plan your build

Once your budget and loan position are clearer, you can begin selecting a home design and planning your build. This step brings together your deposit amount, loan approval, and overall build costs so you can move forward with confidence.

Apply for the scheme and confirm your place

Your lender will submit your application under the deposit scheme and confirm whether a place is available. Once approved, you can progress with the home loan process and take the next steps toward building your first home.

How can you maximise your budget when building with only a 5% down?

Building with a 5% deposit means being especially mindful of how your budget is allocated. While the Australian Government deposit scheme helps reduce the upfront deposit required, first home buyers still need to plan carefully for construction costs, land, and other upfront expenses. Understanding how your budget works across the entire build process can help you make confident decisions from the outset.

Choosing a home design that balances lifestyle needs with long-term value can make a big difference. Fixed-price building options, clear inclusions, and early decisions around finishes can help minimise unexpected costs. By planning ahead and understanding how your deposit, home loan, and build costs work together, you can maximise your budget and move toward home ownership sooner.

Ready to make your 5% deposit go further?

A 5% deposit can help eligible first home buyers enter the housing market sooner through the Australian Government deposit scheme. With the right plan, you can make your deposit go further and move forward with confidence toward building a home that suits your lifestyle. Speak with Carlisle Homes about building your first home with a 5% deposit.