Previously called the First Home Loan Deposit Scheme, the Home Guarantee Scheme (HGS) is a government initiative that helps eligible home buyers who don't have the 20% deposit typically required for a mortgage to purchase a home. The Scheme is administered by Housing Australia - previously called the National Housing Finance and Investment Corporation (NHFIC) - on behalf of the Australian Government.

What does the Home Guarantee Scheme include?

The HGS comprises of three separate schemes designed to help Australians climb onto the property ladder. These include:

• The First Home Guarantee (FHBG)

• The Regional First Home Buyer Guarantee (RFHBG)

• The Family Home Guarantee (FHG)

The First Home Guarantee (FHBG)

The first of three schemes offers first home buyers the ability to purchase a home with a deposit as low as 5%, without the need to pay Lenders Mortgage Insurance (LMI).

Aspiring home owners are eligible to borrow up to 95% of the property value, with the Federal Government providing participating lenders with a guarantee of up to 15% of the property's value.

Under the FHBG, 35,000 places are available each financial year nationwide.

The Regional First Home Buyer Guarantee (RFHBG)

The RFHBG supports eligible regional first home buyers to purchase a home in a regional area. From 1 October 2022, 10,000 places are available each financial year to 30 June 2025.

In similar fashion to the FHBG, the RFHBG assists first home buyers to purchase a regional home with as little as a 5% deposit without having to pay Lenders Mortgage Insurance (LMI).

Previously, the Regional First Home Buyer Guarantee was only available to Aussies who have been living in the region they wish to buy for at least one year. The expanded version of the scheme now includes an exemption to the requirement to live in the region or adjacent region for the preceding 12-month period.

An exemption was previously only available to Australian Defence Force members.

The Family Home Guarantee (FHG)

The FHG supports eligible single parents with at least one dependent child to buy a home, with a deposit as little as 2%. 5,000 guarantees will be made available each financial until 30 June 2025 to help single parents purchase a property with as little as a 2% deposit without having to pay lenders mortgage insurance (LMI).

Unlike the previous two schemes where a 5% deposit is required, the FHG requires a deposit of as little as 2% to be eligible.

How many places are available under the Home Guarantee Scheme?

In total, the HGS offers 50,000 places per financial year until 30 June 2025.

How to apply for a home loan under the Home Guarantee Scheme

To apply for a HGS home loan, you must meet eligibility criteria outlined by Housing Australia and make an application through bank or lender that is participating in the scheme.

Eligible home buyers under the scheme include the following:

• Australian citizens and permanent residents (all guarantees)

• Single natural, adoptive parents, or single legal guardians of at least one dependent (for the Family Home Guarantee)

• First home buyers or home buyers who haven't owned a property in Australia in the past 10 years (for the First Home Guarantee and the Regional First Home Buyer Guarantee)

• Single applicants; married or de-facto couples; joint applicants i.e. friends, siblings, and other family members (for the First Home Guarantee and the Regional First Home Buyer Guarantee)

The full list of lenders participating in the HGS is available here from Housing Australia.

What are the property price caps for the Home Guarantee Scheme?

Property price caps refer to the maximum purchase prices for eligible properties purchased under the Home Guarantee Scheme (HGS).

Importantly, property price caps will vary depending on the financial year that you take up the scheme and where the property is located. Below you will find the latest price cap information provided by Housing Australia.

First Home Guarantee and Family Home Guarantee Property Price Caps

Regional First Home Buyer Guarantee Property Price Caps

*Regional centres are classified as Newcastle and Lake Macquarie, Illawarra, Geelong, Gold Coast and Sunshine Coast.

What are the income caps for the Home Guarantee Scheme?

Under the HGS, annual taxable income caps apply to both singles and couples in order to be eligible. This is set at under $125,001 for singles or $200,001 for couples.

What type of property can I purchase through the Home Guarantee Scheme?

The properties available for purchase using the HGS are fit for residential owner occupier purposes only. This means investors are ineligible for the HGS. Eligible residential properties include:

• An existing house, townhouse or apartment

• A house and land package

• Land and a separate contract to build a home

• An off-the-plan apartment or townhouse

What are the risks of a small deposit home loan?

First-timers with a small deposit will ultimately pay more interest as they have less equity than the same property value with a bigger deposit. Because they have less equity, in the event of a sudden price drop, they could find themselves in negative equity. Negative equity is when the amount of outstanding mortgage on a property is higher than the property value.

Home loans requiring only a 5% deposit might also have higher interest rates. While it is possible to refinance, this is generally only recommended if you have at least 20% equity. If interest rates rise, and your equity is less than 20%, you might be stuck in a 'mortgage prison' where you're paying a higher rate yet unable to do anything about it.

Further, there are typically restrictions with how you use your cash savings. For example, you might have the equivalent of more than 20% of the home's value saved up, but want to keep some for a rainy day or another purpose. In this case, you might be ruled ineligible for the scheme.

Can I use the Home Guarantee Scheme with other government grants?

As the HGS is an Australian Federal Government initiative, home buyers are eligible to receive state government grants in addition.

State government grants are typically titled First Home Owner Grants (FHOG), yet eligibility and availability of the grants varies from state to state. First home buyers can head to this state government website to determine if the state or territory to be called home offers the FHOG and eligibility criteria to receive this grant.

In addition, stamp duty concessions may also be available to first home buyers depending on the state. Stamp duty is one of the most significant upfront expenses when purchasing a home, therefore state-based reductions can help with the overall cost of purchasing your first home.

Read more: First Home Buyer

Jacob Cocciolone

Jacob is a Savings Media Group journalist with an interest in financial technology, investing, property, and motoring.