Everything You Need to Know About Buying with No Deposit

Buying property without a 20% deposit used to mean lenders mortgage insurance, and in many cases, it still does.

But government-backed schemes now give eligible buyers another option: purchase with as little as 5% down, or 2% for single parents, without paying LMI at all. The Australian Government 5% Deposit Scheme provides a guarantee to participating lenders, making up the gap between your deposit and the 20% lenders typically require. No income limits apply, no annual place caps exist, and the scheme is available through a panel of more than 30 participating lenders.

For buyers in NSW, the property price cap is $1,500,000 in Sydney, Newcastle, the Central Coast, and other regional centres, and $800,000 elsewhere. Both your purchase price and the lender's assessed value need to fall within that cap. The scheme works with variable, fixed, and split rate structures depending on your lender, and you can use it alongside NSW stamp duty relief and the First Home Owner Grant if you meet the eligibility criteria for those programs.

How the Guarantee Works Instead of Lenders Mortgage Insurance

LMI exists to protect the lender if you default and the property sells for less than you owe. It typically kicks in when your deposit is below 20%, and the premium can run into the thousands, sometimes tens of thousands, depending on your loan size and deposit.

The government guarantee replaces that insurance by covering up to 15% of the property value for first home buyers and up to 18% for single parents. Your lender treats the combined deposit and guarantee as though you put down 20%, so no LMI premium applies. You still need a minimum 5% deposit from genuine savings, or 2% if you are a single parent or legal guardian, and you still go through full credit and serviceability assessment. The guarantee does not reduce your deposit, it just removes the LMI cost.

Consider a buyer purchasing at $850,000 under the 5% deposit option. A 5% deposit is $42,500. The government guarantee covers another $127,500, bringing the total to 20%. Without the guarantee, that buyer would need to pay LMI on an $807,500 loan at 95% LVR. The premium would likely exceed $20,000, either paid upfront or capitalised into the loan. The guarantee removes that cost entirely.

What You Need to Qualify for the Australian Government 5% Deposit Scheme

You need to be at least 18 years old and an Australian citizen or permanent resident. You cannot have owned property in Australia before, though some exceptions exist for single parents and for people who have not owned property in the previous ten years. At least one borrower on the application must be a first home buyer.

First home buyers applying under the scheme need to occupy the property as their principal place of residence for at least 12 months. You apply through a participating lender, not directly through Housing Australia. Your broker can confirm which lenders on the panel match your situation, what interest rate options they offer, and how quickly they can turn around an application.

The income and employment criteria depend on the lender. APRA requires all lenders to assess your ability to service the loan at an interest rate at least 3.0 percentage points above the actual product rate. Some lenders may have slightly different serviceability policies within that framework, particularly if you fall outside standard employment or income structures.

Single Parents Can Purchase with Just 2% Down

Single parents or legal guardians can access the scheme with a deposit of just 2% of the property value. The government guarantee increases to 18%, bringing the combined total to 20%. The same property price caps apply, and the same residency and eligibility rules hold.

A single parent buying at $700,000 would need a $14,000 deposit under the 2% option. The guarantee covers $126,000. The resulting loan of $686,000 sits at 98% LVR, but the lender treats it as 80% because of the guarantee. Without the scheme, a loan at 98% LVR would either be unavailable through most lenders or require an LMI premium in excess of $25,000. The scheme removes that barrier entirely.

You still need to meet standard credit and income criteria, and the lender still assesses your ability to service the loan under the 3.0 percentage point buffer. If your employment is irregular or your income fluctuates, some lenders on the panel have more flexible policies than others. Your broker can identify which lender will assess your application most favourably based on your specific circumstances.

How the Scheme Works Alongside NSW Stamp Duty Relief and the First Home Owner Grant

NSW offers a full stamp duty exemption on properties valued up to $800,000 for first home buyers, with a sliding concession on properties between $800,001 and $1,000,000. That exemption applies to both new and established homes, and you can use it at the same time as the government guarantee. For vacant land, a full exemption applies up to $350,000 with a concession for land valued between $350,001 and $450,000.

The First Home Owner Grant in NSW is $10,000, but it applies only to new builds or substantially renovated homes with a purchase price up to $600,000, or a combined land and build cost up to $750,000. You cannot claim the grant on an established home. If you are buying new and your purchase price falls within the FHOG cap, you can use the grant, the stamp duty exemption, and the government guarantee together.

In a scenario where a buyer purchases a new townhouse for $750,000, they would receive $10,000 from the FHOG, pay no stamp duty, and access the government guarantee with a 5% deposit of $37,500. The guarantee covers another $112,500. The total benefit from combining all three programs would be more than $40,000 when you factor in the stamp duty saved and the LMI avoided.

When a Parental Guarantee Makes More Sense Than the Government Scheme

A parental guarantee lets your parents use equity in their home as additional security for your loan. You can borrow up to 105% of the property value in some cases, covering the full purchase price plus stamp duty and other costs, without needing any cash deposit at all.

The government scheme caps your borrowing at the property price and requires you to have genuine savings for at least a 2% or 5% deposit. If you do not have those savings, or if you need to borrow more than the purchase price to cover costs, a parental guarantee may be the only option available.

Your parents do not make repayments and do not go on title. They guarantee a portion of the loan, usually 20% to 25% of the property value, using their home as security. Once you build enough equity through repayments or capital growth, the guarantee can be removed and your parents are released from the loan entirely. That usually takes two to five years depending on how much you pay down and how the property performs.

The risk sits with your parents. If you default, the lender can pursue their property to recover the shortfall. That makes a parental guarantee a significant commitment, and it only works if your parents have enough available equity and are comfortable with the risk. We regularly see this structure used when buyers have stable income but limited savings, or when they need to move quickly and do not have time to build a deposit.

What Happens If You Want to Refinance or Sell

You can refinance after 12 months if you have met the residency requirement and your circumstances have changed. If your property has increased in value or you have paid down enough of the loan to reach 80% LVR without the guarantee, you can refinance to a standard home loan with any lender. The government guarantee ends when you refinance, but you no longer need it once your equity position improves.

If you sell within the first 12 months without meeting the residency requirement, you may need to repay part or all of the benefit you received under the scheme. Housing Australia monitors compliance, and lenders report when borrowers exit early. Genuine hardship circumstances are assessed individually, but voluntary sales or moves are generally treated as breaches of the residency condition.

If you sell after the 12-month residency period, no repayment obligation applies. The guarantee remains in place until you either sell, refinance, or pay down the loan to below 80% LVR. Once the loan balance drops below 80% of the property value, the guarantee is no longer required and is automatically removed.

Call one of our team or book an appointment at a time that works for you. We work with all the lenders on the government panel and can walk you through exactly what deposit you need, what your repayments will look like, and how long the application process takes from start to settlement.

Frequently Asked Questions