How do government grants like the First Home Guarantee affect my pre-approval?

The First Home Guarantee is one of the most valuable tools available to first home buyers, but it is also one of the most misunderstood. People often think of it as a magic pass that gets them a loan. It is better understood as something that works alongside a normal pre-approval, lowering your deposit and removing one big cost, while the usual lender assessment still applies.

What the First Home Guarantee does

Under the First Home Guarantee, an eligible first home buyer can take out a loan with as little as a 5 per cent deposit and pay no Lenders Mortgage Insurance. The government guarantees the gap between your deposit and 20 per cent for the lender, so the lender treats the loan as lower risk. You still own 100 per cent of your home, and the government holds no stake in it. It is a guarantee to your lender, not a cash grant to you.

The big 2025 expansion

From the first of October 2025, the scheme was expanded and is now also known as the Australian Government 5 per cent Deposit Scheme. The previous income limits were removed, so higher earners can now access it. The cap on the number of places was removed, so eligible buyers can apply at any time rather than competing for limited spots. And the property price caps were increased. Because those price caps vary by location and are updated over time, you should confirm the current caps and rules with Housing Australia rather than rely on older numbers.

It does not replace your pre-approval

This is the key point. The guarantee does not change the fact that a lender still has to be willing to lend to you. You apply through one of the participating lenders, and that lender still assesses your income, your expenses, your existing debts and the property, just as it would for any loan. You still go through a genuine pre-approval and then formal approval. The scheme changes the deposit and the LMI, not the assessment of whether you can afford the loan.

How it affects your pre-approval in practice

In practical terms, using the scheme means a few things flow through to your pre-approval. Your required deposit is lower, which can bring your purchase forward by years. LMI is removed, which can save a significant cost. But the lender still applies its normal serviceability rules, including the requirement to assess you at a rate well above the actual rate, so your borrowing power is worked out the same way. You also have to fit within the scheme eligibility and the property price cap, which can limit what you are able to buy.

Eligibility basics

The detailed rules are set by Housing Australia and should be confirmed there, but in broad terms you generally need to:

• Be an Australian citizen or permanent resident, aged eighteen or over.
• Be a first home buyer, with only limited exceptions for certain re-entry buyers.
• Intend to live in the property as your home, and move in within the required timeframe.
• Buy a property within the relevant price cap for the location.
• Have at least a 5 per cent deposit from genuine savings or eligible equivalents.

Couples generally need to be married or in a de facto relationship to apply together. Friends or siblings buying together do not currently fit the joint pathway.

The Family Home Guarantee for single parents

There is a separate stream, the Family Home Guarantee, for eligible single parents and single legal guardians, which allows a deposit as low as 2 per cent, also without LMI. If this might apply to you, confirm the current eligibility with Housing Australia or talk it through with a broker.

What the scheme does not change

It is worth being clear on the limits. The scheme does not guarantee you will be approved, because the lender assessment still applies. It does not let you buy above the price cap. It does not change the requirement that the property be acceptable security. And it is not money in your pocket, since it is a guarantee, not a grant. Keeping these in mind sets realistic expectations.

How a broker helps with the scheme

Only a panel of participating lenders offers the scheme, and each still has its own credit policy. The value of a broker is in matching you to a participating lender that both offers the guarantee and suits your particular situation, so you are not knocked back for a reason unrelated to the scheme. A broker can also help you confirm eligibility and line up your pre-approval correctly from the start.