Avoid Paying the Banks' Insurance Fees: How the First Home Guarantee Works
The First Home Guarantee (FHBG) offers an incredible opportunity for Australians to step into the property market with just a 5% deposit, while avoiding the hefty cost of Lenders Mortgage Insurance (LMI). Unlike some government housing initiatives, the FHBG is not an equity share scheme - you retain full ownership of your home. Administered under the Home Guarantee Scheme (HGS), this initiative is designed to make homeownership more accessible for eligible buyers.
Here’s everything you need to know about how the FHBG works, who can apply, and why it could be the key to your homeownership goals.
What Is the First Home Guarantee?
The FHBG allows eligible home buyers to purchase a property with a deposit as small as 5%, bypassing the need for LMI. Normally, buyers with less than a 20% deposit pay LMI to protect lenders from financial risk. The FHBG replaces this requirement by providing a government guarantee of up to 15% of the property’s value to participating lenders.
Crucially, the scheme is not a loan, cash payment, or deposit contribution. It simply ensures that lenders can approve loans without requiring the buyer to shoulder the additional cost of LMI. This distinction makes the FHBG an attractive choice for first-home buyers seeking to reduce their upfront costs.
Not an Equity Share Scheme: You Own 100% of Your Home
A common misconception about government-backed schemes is that they all involve equity sharing, where the government or another entity owns a portion of your property. The First Home Guarantee is different. Under this program, you purchase and retain full ownership of your home from day one. The government’s role is limited to guaranteeing part of your loan- not sharing in your property’s value or future growth.
This independence allows buyers to enjoy the benefits of owning their property outright, including full control over its use and the freedom to make future financial decisions, such as refinancing or selling.
Key Benefits of the FHBG
Lower Deposit Requirements: Buy a home with as little as 5% deposit, compared to the typical 20% required to avoid LMI.
Save on LMI Costs: Avoid paying thousands of dollars in LMI, which can significantly reduce upfront costs and reduce borrowing capacity.
Full Homeownership: You own 100% of your property.
Combines with Other Incentives: Use the FHBG alongside grants like the First Home Super Saver Scheme or state-based stamp duty concessions.
Eligibility Criteria
To access the FHBG, you must meet specific requirements (as of early 2025):
Residency and Age:
Be an Australian citizen, permanent resident or New Zealand citizen on a 444 visa.
Be at least 18 years old.
Income Limits:
Individual applicants must earn no more than $125,000 annually.
Couples can earn up to $200,000 combined.
First-Home Buyer Status:
Be a first-home buyer or someone who hasn’t owned a property in the last 10 years.
Owner-Occupier Intent:
The property must be your primary place of residence.
Deposit:
Have a deposit between 5% and 20% of the property’s value.
What Types of Properties Are Eligible?
The FHBG supports the purchase of a variety of residential properties, including:
Existing houses, townhouses, or apartments.
House-and-land packages.
Vacant land with a contract to build.
Off-the-plan townhouses or apartments.
Each property must meet the relevant price cap for its location. For instance, the cap for Sydney is $900,000, Melbourne $800,000 and Hobart is $600,000, ensuring the scheme supports modest homes. Check caps here.
How Does the Guarantee Work?
When you apply through a Participating Lender, Housing Australia guarantees up to 15% of the property’s value. This guarantee reduces the risk for lenders, allowing them to approve loans with lower deposit requirements.
Key Features:
The guarantee eliminates the need for LMI, saving buyers significant upfront costs.
The scheme supports principal and interest loans, with a maximum term of 30 years.
Buyers must meet the lender’s standard loan criteria, including creditworthiness and income assessments.
It’s worth noting that while the FHBG reduces initial expenses, buyers remain responsible for other upfront costs, such as stamp duty (if applicable), legal fees, and building inspections.
How to Apply
To access the FHBG, your broker can apply on your behalf. Here’s the process:
Check Eligibility: Use the Eligibility Tool on Housing Australia’s website to confirm your suitability.
Gather Documentation: Provide your Notice of Assessment (NOA) from the Australian Taxation Office for the relevant financial year.
Select a Property: Ensure the property aligns with the scheme’s criteria and price cap.
Apply: Work with your broker to secure a spot under the scheme.
Combining the FHBG with Other Incentives
Eligible buyers can combine the FHBG with other schemes for added benefits:
First Home Super Saver Scheme: Boost your deposit savings through tax-effective super contributions.
State-Based Incentives: Many states and territories offer grants and stamp duty concessions for first-home buyers.
These programs can work together to make homeownership even more affordable.
Why Consider the FHBG?
The First Home Guarantee is an invaluable tool for Australians looking to enter the property market with reduced upfront costs. By bypassing LMI and maintaining full ownership of your home, this scheme offers a clear pathway to achieving homeownership on your terms.
Three Capes Finance services clients in Hobart, across Australia, and expats worldwide. It’s our aim to be recognised as the best mortgage broker in Hobart and beyond, helping clients navigate the complexities of the home-buying process and make the most of initiatives like the FHBG.