Can You Buy a Home With a 5% Deposit in 2025?
Many Australians still believe that buying a home requires a 20% deposit. While that may have been the traditional path, today’s lending environment, combined with government support, means you can get into the property market with just a 5% deposit. But while the lower barrier to entry is great news for first-home buyers, it’s important to understand the trade-offs, lender criteria, and how to prepare financially.
Let’s break down exactly how it works, what options are available in 2025, and whether a 5% deposit is the right move for you.
Yes, You Can Buy With a 5% Deposit - But Here’s What That Means
Lenders now offer loans to eligible borrowers with as little as 5% of the property price saved as a deposit. However, when you contribute less than 20%, the lender is taking on more risk, so they’ll assess your application more carefully. In most cases, you’ll also need to pay Lenders Mortgage Insurance (LMI), which protects the lender if you default. But there’s good news: if you qualify for the First Home Guarantee, you could avoid paying LMI altogether.
Let’s say you’re purchasing a home worth $600,000. A 5% deposit means you’ll need to contribute $30,000, and borrow the remaining $570,000. Compared to a 20% deposit of $120,000, that’s a significantly smaller upfront hurdle. The trade-off is a higher loan amount, which leads to larger monthly repayments and more interest paid over time.
How the First Home Guarantee Can Help
The First Home Guarantee (FHG) is a government scheme designed to support eligible first-home buyers with low deposits. It allows you to purchase a home with just 5% down and pay no LMI, potentially saving you thousands. The scheme is run by Housing Australia (formerly NHFIC), and there are limited spots available each year.
To be eligible in 2025, you must be an Australian citizen or permanent resident, earning no more than $125,000 as a single applicant or $200,000 as a couple. The property you purchase must also fall under your region’s price cap, which varies by state and location. If you're eligible, this scheme can fast-track your entry into the market by removing one of the largest added costs for low-deposit buyers.
What If You Don’t Qualify for the Scheme?
If you’re not eligible for the First Home Guarantee, Lenders Mortgage Insurance will likely apply. LMI can add tens of thousands to your loan, depending on how much you borrow. For a $600,000 home, expect to pay around $20,000 in LMI with a 5% deposit, or about half that with a 10% deposit. Some lenders let you capitalise this cost into the loan, reducing your upfront expense but increasing your repayments over time.
How to Strengthen Your Application With a Small Deposit
Getting approved with a 5% deposit means proving you can comfortably afford the larger loan. Lenders will look closely at your income stability, credit score, and spending habits. If you’ve been in your job for at least 6–12 months and your income is consistent, that’s a positive sign. Likewise, a strong credit history, low personal debt, and clear evidence of genuine savings will all work in your favour.
If you’re still building your deposit, aim for 7–10% if you can, it not only reduces LMI but may give you access to a wider range of lenders. Reducing credit card limits, paying off personal loans, and cutting back on non-essential spending in the months before applying can also improve your borrowing power.
The Pros and Cons of a 5% Deposit Loan
The biggest advantage is the ability to enter the market sooner, rather than waiting years to save a 20% deposit, you could buy now and potentially benefit from capital growth. You’ll also be able to combine other first-home buyer incentives, like stamp duty concessions and the First Home Owner Grant, to reduce your upfront costs further.
But buying with a smaller deposit also means taking on a larger loan, which comes with higher repayments and more interest over the life of the loan. If you don’t qualify for LMI waivers, this can increase your overall costs significantly. It’s also worth noting that not all lenders accept low deposits, so your options may be more limited.
Common Questions About 5% Deposit Home Loans
Can I use a 5% deposit for an investment property?
Generally no. Most lenders require at least a 10–20% deposit for investment loans.
What if property values drop after I buy?
There’s always a risk of negative equity with small deposits. That’s why it’s important to view your home as a long-term investment, giving the market time to recover and grow.
Can I combine multiple grants and incentives?
Yes! Many first home buyers in 2025 are using the First Home Guarantee along with the First Home Owner Grant and stamp duty exemptions to make buying more affordable.
Are there lenders that waive LMI even without the FHG?
Yes, some lenders offer LMI waivers for certain professions, including doctors, lawyers, and accountants. A broker can help you identify if this applies to you.
Is Buying With a 5% Deposit Right for You?
There’s no one-size-fits-all answer. For some, the ability to stop renting and start building equity sooner outweighs the higher repayments and LMI risk. For others, it may make more sense to continue saving for a bigger deposit. The key is to understand your budget, borrowing capacity, and eligibility for government support.
If you’re not sure where you stand, or want help comparing lenders that accept low deposits, a mortgage broker can guide you through the process and help you make a confident, informed decision.
How We Can Help
If you’re ready to explore buying with a low deposit, we’re here to help. We’ll assess your eligibility for the First Home Guarantee and other grants, compare lender options, and guide you through pre-approval and the loan application process, making everything as smooth and stress-free as possible.
