🎧 EP 288 - 5% Deposit, 95% Loan: What Buyers Need to Know
A 5% Deposit Scheme sounds like the answer to every first home buyer's biggest challenge. Save less, buy sooner, avoid lenders mortgage insurance, and finally get into the property market.
For many buyers, that opportunity can be life-changing. But buying with a smaller deposit also means taking on a much larger loan, so it's important to understand both the benefits and the responsibilities before making a decision.
In this episode, Veronica and Meighan are joined by mortgage broker Jack Elliott from Alcove Mortgages to explain how the 5% Deposit Scheme works, how it fits within the First Home Guarantee, and what the recent government home guarantee scheme changes mean for today's first home buyers. Together, they unpack the practical considerations that often get overlooked, helping you decide whether this pathway is right for your own circumstances.
Here's what we cover and why it matters:
🏡 How the 5% Deposit Scheme really works
Many buyers ask, "Can I buy a house with a 5 percent deposit?" The short answer is yes—but only if you meet the eligibility requirements and understand how the scheme works.
The First Home Guarantee allows eligible buyers to purchase a home with as little as a 5% home loan deposit without paying lenders mortgage insurance (LMI). Instead of contributing money towards your purchase, the Australian Government guarantees part of the loan, allowing participating lenders to assess your application as though you had a 20% deposit.
The episode also explains one requirement that often surprises buyers: genuine savings. Most lenders want to see that your deposit has been genuinely saved and held in your account for a period of time, rather than being deposited immediately before you apply for finance. Understanding these requirements early can help avoid delays when you're ready to purchase.
📈 Why borrowing 95% comes with additional risks
One of the biggest advantages of buying a home with a small deposit is getting into the property market sooner. But buying earlier doesn't remove the financial risks that come with borrowing 95% of a property's value.
With a higher loan-to-value ratio, you'llhave less equity in the early years of ownership, which means market fluctuations can have a greater impact. Jack explains why buyers need to think beyond settlement day and consider how long they intend to own the property, how they'll manage unexpected expenses, and what happens if circumstances change.
The conversation reinforces that the 5% Deposit Scheme is designed to help buyers enter the market—not eliminate the importance of careful planning.
🏘️ Don't let price caps determine the property you buy
The recent government home guarantee scheme changes expanded eligibility by removing income caps and increasing property price caps across many parts of Australia. That means more first home buyers can now access the First Home Guarantee than ever before.
However, Veronica, Meighan and Jack caution against letting the scheme dictate your property choice. Just because a home falls within the price cap doesn't necessarily mean it's the right property for your long-term goals.
They encourage buyers to focus on purchasing the best quality asset they can comfortably afford. In some situations, choosing a different lending pathway—such as paying lenders mortgage insurance, using a guarantor, or selecting another owner occupier home loan option—may provide greater flexibility and a stronger long-term outcome.
💰 Looking beyond your home loan deposit
A common misconception is that once you've saved a 5% home loan deposit, you're financially ready to buy.
The reality is there are several additional expenses to budget for, including stamp duty (where applicable), conveyancing, building and pest inspections, moving costs and other settlement expenses. These costs can add up quickly, so it's important to include them in your savings plan from the beginning.
If you've ever wondered, "How much savings do I need to buy a house?", this episode provides a practical reminder that your deposit is only one part of the equation. Planning for all of your upfront costs can help you avoid unnecessary financial stress during the buying process.
🛡️ Why a first home buyer cash buffer matters
Saving enough for settlement is a great achievement, but your financial planning shouldn't stop there.
Jack explains why every first home buyer cash buffer is just as important as the deposit itself. Ideally, buyers should aim to keep three to six months of living expenses available after settlement to help manage unexpected events such as job changes, medical expenses or emergency repairs.
The discussion also covers offset accounts, personal insurance and budgeting strategies that can help protect buyers while they're carrying a high loan balance. Having this financial buffer can provide confidence and flexibility during the early years of home ownership.
🎯 Choosing the right strategy—not just the right scheme
The biggest message throughout this episode is that the 5% Deposit Scheme is a valuable tool, but it isn't automatically the best solution for every buyer.
For some people, using the First Home Guarantee will provide the opportunity to purchase sooner and avoid lenders mortgage insurance. For others, spending a little more time saving, reducing their loan size, or exploring alternative finance options may create a stronger financial position over the long term.
🎧 By the end of this episode, you'll understand how the First Home Guarantee and 5% Deposit Scheme work, what the latest government home guarantee scheme changes mean for buyers, how lenders mortgage insurance fits into the picture, and the practical steps you can take to buy your first home with greater confidence and financial security.
Episode Highlights:
01:48 – Why the 5% Deposit Scheme Is So Popular
05:16 – Why Banks Charge Lenders Mortgage Insurance
08:06 – Who Can Use the 5% Deposit Scheme?
12:45 – Which Lenders Offer the 5% Deposit Scheme?
16:28 – How to Protect Yourself With a 95% Home Loan
21:24 – Is the 5% Deposit Scheme Right for You?
24:26 – Join Our First Home Buyer Community
05:16 – Why Banks Charge Lenders Mortgage Insurance
08:06 – Who Can Use the 5% Deposit Scheme?
12:45 – Which Lenders Offer the 5% Deposit Scheme?
16:28 – How to Protect Yourself With a 95% Home Loan
21:24 – Is the 5% Deposit Scheme Right for You?
24:26 – Join Our First Home Buyer Community
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Co-Founders
Veronica Morgan & Meighan Wells
Veronica & Meighan are both licensed real estate agents who exclusively help buyers. Together they have nearly 40 years experience as property professionals.
Veronica is principal of Sydney based Good Deeds Property Buyers and is also co-host of The Elephant in the Room property podcast as well as Location Location Location Australia on Foxtel and author of Auction Ready: how to buy property at auction even though you're scared s#!tless!
Meighan is the multi award winning principal of Brisbane based Property Pursuit, chairperson of the REIQ Buyers Agent Chapter & a regular media commentator.
