Buying a home with just a 5% deposit is becoming increasingly popular in Australia, especially among first-home buyers who want to enter the market sooner. But how do you know if you’re eligible, and what steps should you take before applying?

This guide breaks down everything you need to know about 5% deposit home loan eligibility and how LJ Mortgages & Finance can support you through the process.

What Is a 5% Deposit Home Loan?

A 5% deposit home loan allows you to buy a property with only 5% of the purchase price saved. For example, for a $600,000 home, you would typically need $30,000 as your deposit.

While this is a smaller upfront amount, lenders will still assess your financial position carefully to ensure you can manage repayments and other associated costs.

Who Is Eligible for a 5% Deposit?

Eligibility varies depending on your lender, income, and financial history. You’re more likely to qualify if you meet the following criteria:

1. Stable Income

Lenders generally look for:

• Consistent employment (usually 6 months minimum, however there can be exceptions)
  
• Regular income that comfortably supports repayments
  
• Demonstrated savings habits or “genuine savings”
  

2. Good Credit History

Your credit score is an important factor. Lenders prefer:

• No major defaults
  
• No recent late payments
  
• Responsible management of credit cards or personal loans
  

3. Genuine Savings Evidence

Most lenders require proof of genuine savings, such as:

• Money saved over 1–3 months
  
• Regular deposits into a savings account
  
• Rental history (accepted by some lenders)
  

4. Ability to Cover Additional Costs

Besides your deposit, you must be able to cover:

• Stamp duty (where applicable)
  
• Legal fees
  
• Building and pest inspections
  
• Loan application and settlement costs
  

5. Strong Borrowing Capacity

Lenders will assess:

• Your income versus living expenses
  
• Existing financial commitments
  
• Number of dependents
  
• Overall financial stability
  

What About Government Programs?

Several government schemes support Australians purchasing a home with a low deposit.

First Home Guarantee (FHBG)

Allows eligible first-home buyers to purchase with as little as 5% deposit without paying LMI.

Family Home Guarantee

Supports single parents purchasing a home with as little as 2% deposit.

First Home Owner Grant (FHOG)

A state-based grant that may boost your funds if you’re buying or building a new home.

LJ Mortgages & Finance can help assess your eligibility for these initiatives.

Is a 5% Deposit Right for You?

A 5% deposit may be a suitable option if:

• You want to enter the property market sooner
  
• You have stable income but limited savings
  
• You qualify for government schemes
  
• You understand the long-term financial impacts such as LMI
  

It may not be ideal if:

• You have significant existing debt
  
• Your income is unstable
  
• Your credit score needs improvement
  

How LJ Mortgages & Finance Can Help

LJ Mortgages & Finance specialises in helping Australians secure home loans, even with low deposits. Our team can assist with:

• Determining your eligibility
  
• Comparing lenders that offer 5% deposit home loans
  
• Applying for government support programs
  
• Calculating your borrowing power
  
• Providing step-by-step guidance throughout the loan process
  

Frequently Asked Questions (FAQs)

1. Can I really buy a home with only a 5% deposit?

Yes. Many Australian lenders offer 5% deposit home loans, and government programs can also help reduce upfront costs. However, eligibility criteria must be met.

2. Do I have to pay Lenders Mortgage Insurance (LMI) with a 5% deposit?

Generally, yes. Most 5% deposit borrowers pay LMI. However, schemes like the First Home Guarantee allow eligible buyers to avoid LMI entirely.

3. What credit score do I need for a 5% deposit home loan?

There is no fixed score, but a higher credit score increases your chances. Lenders usually require a clean repayment history and no recent defaults.

4. Can I use rental history instead of savings?

Some lenders accept rental history as a substitute for genuine savings, particularly for first-home buyers. Eligibility varies by lender.

5. Are 5% deposit home loans more expensive?

They can be, as LMI may apply, and interest rates may be slightly higher. However, entering the market sooner can outweigh these extra costs for many buyers.

6. Can single parents qualify for a low-deposit home loan?

Yes. The Family Home Guarantee allows eligible single parents to buy a home with as little as a 2% deposit.

7. How do I know if I qualify for government schemes?

Eligibility depends on factors such as income, property price caps, citizenship, and whether you’re a first-home buyer. LJ Mortgages & Finance can help you check all requirements.

Ready to Check Your 5% Deposit Eligibility?

The team at LJ Mortgages & Finance is here to help you understand your options and guide you through the entire home loan process. Reach out for personalised advice and support tailored to your situation.