Can I buy with a 5% deposit as a first home buyer in NSW?
Yes, first home buyers in NSW can buy with a 5% deposit without paying Lenders Mortgage Insurance, provided they qualify for the First Home Guarantee or a similar government scheme. The government acts as guarantor for the remaining 15%, so lenders treat your loan as an 80% LVR product. Places are limited each financial year and income and property price caps apply, so checking your eligibility early matters.
The Fuller Picture
The First Home Guarantee allows eligible first home buyers to purchase with a 5% deposit without paying Lenders Mortgage Insurance. The federal government guarantees the remaining 15% of the purchase price to your lender, meaning the bank treats your loan as if you had a 20% deposit. You still borrow 95% of the purchase price — the guarantee simply replaces the LMI premium you would otherwise pay, which can be tens of thousands of dollars depending on your loan size.
To qualify, you need to meet the income threshold (currently $125,000 per year for singles and $200,000 for couples based on taxable income from the previous financial year), purchase within the property price cap for your region, and not have previously owned property in Australia. The home must be your principal place of residence — you cannot use the guarantee for an investment purchase. You'll also need to be an Australian citizen or permanent resident and meet the lender's own credit criteria.
There are 35,000 First Home Guarantee places available nationally each financial year across a panel of approved lenders. Not every lender participates, so your product choice is narrower than the open mortgage market. Once places fill for the year, the scheme resets on 1 July. There are also related schemes — including the Regional First Home Buyer Guarantee and the Family Home Guarantee for single parents — which have their own eligibility rules and separate place allocations.
What This Means for Your Purchase
Buying with a 5% deposit compresses your savings timeline significantly. For a $700,000 property, the difference between a 5% and 20% deposit is $105,000 — for many buyers that represents several additional years of saving. The scheme can allow eligible buyers to enter the market 18 months to two years earlier than they otherwise could, which matters when prices are moving.
The practical reality is that borrowing 95% of a purchase price means higher repayments and slower equity accumulation in the early years. If property values fell after purchase, buyers at 95% LVR carry more exposure to their loan balance exceeding the property's value than those who entered with a larger deposit. This isn't a reason to avoid the scheme — it's a reason to choose your property and suburb carefully, with a long enough time horizon to ride out any short-term price movement.
You'll also need funds well beyond your 5% deposit. Stamp duty (if applicable), conveyancing fees, a building and pest inspection, and moving costs typically add $15,000–$30,000 to what you need on settlement day. These are separate from your deposit and aren't covered by the guarantee, so your real savings target is meaningfully higher than 5% of your purchase price.
How This Shows Up in the Illawarra
The First Home Guarantee property price cap in the Illawarra — which includes Wollongong and surrounding areas — is $800,000. That covers entry-level houses in suburbs like Dapto, Albion Park, Fairy Meadow, and Corrimal, as well as apartments closer to Wollongong CBD. Buyers targeting coastal suburbs such as Thirroul, Austinmer, or Bulli may find that prices regularly exceed the cap, which makes suburb selection an important early planning decision when structuring a purchase around scheme eligibility.
Most first home buyers in the Illawarra using a guarantee scheme buy through private treaty rather than auction. Purchasing at auction with scheme finance requires full, unconditional approval in place before you bid — there's no cooling-off period and no subject-to-finance clause at auction. That level of preparation is achievable, but it takes longer to arrange than a standard pre-approval, so starting the lender process well in advance is essential if auction properties are on your shortlist.
Frequently Asked Questions
What is the income limit for the First Home Guarantee?
Singles must earn $125,000 or less per year, and couples must earn $200,000 or less combined, based on taxable income from the previous financial year. If you've recently had a pay rise, check last year's Notice of Assessment rather than your current salary — it's the prior year figure that counts.
Can I use the First Home Guarantee to buy an investment property?
No. The guarantee requires you to occupy the property as your principal place of residence. You cannot use it for a property you intend to rent out from the outset. If you later move out and rent the property, that's a separate matter, but you must genuinely intend to live there when you buy.
What happens if scheme places run out before I find a property?
Places reset on 1 July each financial year. If places fill before you're ready, you can wait for the new intake, look at whether a participating lender has its own low-deposit product (LMI will apply), or consider adjusting your savings target to build a larger deposit in the interim.
Is the First Home Guarantee the same as the Family Home Guarantee?
No — they're separate schemes. The Family Home Guarantee is designed for single parents with at least one dependent child and requires only a 2% deposit, with 5,000 places per year. If you're a single parent, it's worth checking whether you qualify for the Family Home Guarantee specifically, as it may be more accessible.
Do I need to have my 5% saved at the time of application or at settlement?
Your deposit needs to be confirmed at the time your loan is formally approved under the scheme. Work with your broker to make sure your funds are verified and ready before the approval stage — falling short of 5% at that point could delay settlement or require you to source additional funds quickly.
Can a buyers agent help me use the First Home Guarantee?
A buyers agent doesn't manage your finance or scheme application — that's your broker's role. What a buyers agent does is help you find and secure the right property within your price cap, negotiate effectively, and avoid overpaying in a situation where every dollar counts. Working with both a broker and a buyers agent alongside each other tends to produce a more coordinated purchase process for first home buyers.
If you're planning to buy with a 5% deposit, having a clear strategy before you start looking makes a real difference. Reach out to The Shoreline Agency if you'd like help timing your purchase and navigating scheme requirements.
