First Home Guarantee: A Step-by-Step Guide to Application and Eligibility

The expanded First Home Guarantee scheme represents a significant opportunity for aspiring homeowners, but successfully navigating the application process requires careful preparation and understanding of the requirements. This guide walks you through everything you need to know.

Who Qualifies for the Scheme?

The expanded scheme has made eligibility much more accessible than before. Here's what you need to meet:

Basic Eligibility Requirements

Residency status: You must be an Australian citizen or permanent resident.

Property ownership history: You cannot have owned property within at least the past decade. This is a key change from "never owned" - if you owned a property more than 10 years ago, you may still qualify.

Property use: The home must be purchased as an owner-occupier residence. You must intend to live in the property, not rent it out or use it for investment purposes.

Property value: The property must fall within the price caps for your local area:

·         Sydney (urban NSW): up to $1.5 million

·         Melbourne and Geelong: $950,000

·         Brisbane and surrounding SE Queensland: $1 million

·         Perth: $850,000

·         Canberra: $1 million

·         Adelaide and regional SA: varies by location

·         Christmas and Cocos Islands: $400,000

The government has deliberately set these caps above median property values in most regions, meaning the majority of homes are now eligible.

What's Changed in the Expansion

The October 1st, 2025 expansion removed two major barriers:

No income restrictions: Previously, there were income caps that excluded higher earners. These are now gone - all first-time buyers are eligible regardless of earnings.

Unlimited places: The old scheme had a limited number of spots available. The expanded version has no cap on participant numbers.

How the Guarantee Works

Understanding what the scheme actually does is crucial:

The Lenders Mortgage Insurance Waiver

Normally, when you borrow more than 80% of a property's value (meaning you have less than a 20% deposit), banks require you to pay Lenders Mortgage Insurance. This insurance protects the bank if you default on your loan - not you.

LMI costs vary based on loan size and circumstances but typically range from several thousand to tens of thousands of dollars. You can either pay this upfront or add it to your loan (increasing your debt).

Under the First Home Guarantee, the government guarantees your loan instead, eliminating the LMI requirement entirely. This can save you substantial money and reduce your initial costs or debt load.

Interest Rate Benefits

Some lenders offer scheme participants more favorable interest rates than they would typically provide for small-deposit loans. As Graham Cooke, head of consumer research at Finder, points out, this isn't guaranteed across all lenders, so it's worth shopping around and playing lenders off against each other to get the best deal. (This is an expert tip, not Phil's direct advice).

The Application Process

Here's how to actually apply for the scheme:

Step 1: Preparation Phase (2-3 months before)

This is when you implement the three critical preparation steps outlined in my previous blog:

·         Check and improve your credit score

·         Reduce credit card limits

·         Clean up your spending patterns

This phase is crucial. Skipping it significantly increases your risk of rejection.

Step 2: Gather Required Documentation

You'll typically need:

·         Proof of identity (driver's license, passport)

·         Proof of income (payslips, tax returns, employment letters)

·         Bank statements (usually 3-6 months)

·         Details of existing debts and expenses

·         Deposit evidence showing genuine savings

Important note on deposits: Your deposit needs to be genuine savings that you've held for or saved over approximately six months. You cannot use money from a cash gift received the day before or recent winnings and immediately apply - lenders want to see a savings history. (This is industry practice information, not Phil's personal policy).

Step 3: Choose Your Lender

Not all banks participate in the scheme. Major participants include Commonwealth Bank, Westpac, NAB, and many others, but notably ANZ and Macquarie are among the exceptions.

Phil will work with you to compare options across multiple lenders.

Step 4: Submit Pre-Approval Application

When you're ready to apply for pre-approval, your bank or mortgage broker will submit two applications simultaneously:

1.      Your loan pre-approval application

2.      Your First Home Guarantee application paperwork

Pre-approval is not a guarantee of final approval, but it gives you a clear understanding of your borrowing capacity and shows sellers you're a serious buyer.

Step 5: Property Search (90-day window)

Once approved for the guarantee, you have 90 days to find a property and sign a contract of sale. This might sound like plenty of time, but in competitive markets, it can go quickly.

During this period:

·         Attend inspections and auctions

·         Arrange building and pest inspections for properties you're serious about

·         Work with your conveyancer or solicitor to review contracts

·         Maintain communication with your lender about properties you're considering

Step 6: Final Approval and Settlement

After signing a contract, your lender will conduct a formal valuation and issue final approval. You'll then proceed to settlement, where the property officially becomes yours.

Important Ongoing Requirements

The guarantee comes with obligations that continue after purchase:

Primary Residence Requirement

The property must remain your primary place of residence while the guarantee is active. If you want to convert it to an investment property and rent it out, you may be required to pay LMI or other additional costs.

This is particularly important to consider for your future plans. As Richard O'Callaghan from Tiimely Home notes, buyers need to think carefully about their medium-term plans before purchasing. (This is an external expert's observation, not Phil's personal advice).

Refinancing Restrictions

If you wish to refinance while remaining on the scheme, you must move to another approved lender. This can limit your options compared to borrowers not on the scheme who can refinance with any lender.

That said, you can exit the scheme at any time by refinancing to a non-participating lender or by paying down your loan to 80% of the property value (building a 20% equity position).

Common Misconceptions

Let's clear up some frequent misunderstandings:

Misconception 1: "If I qualify for the scheme, I'm guaranteed a loan." Reality: The scheme makes you eligible for government backing, but you still need to meet your lender's credit and lending criteria. Bank approval is not automatic.

Misconception 2: "I can borrow up to the price cap for my area." Reality: Your borrowing capacity depends on your income, expenses, and the bank's serviceability assessment. The caps represent the maximum property value eligible for the scheme, not your personal borrowing limit.

Misconception 3: "The scheme makes housing more affordable." Reality: The scheme makes it easier to buy sooner by reducing deposit requirements, but the homes themselves aren't any cheaper. In fact, increased demand may drive prices higher in some markets.

Misconception 4: "I should buy the most expensive property I can qualify for." Reality: Just because you can borrow a certain amount doesn't mean you should. Consider your comfort level with repayments, your future plans, and what happens if interest rates rise or your circumstances change.

Additional Costs to Budget For

Remember, the deposit is just one cost of buying a home. You'll also need to cover:

·         Stamp duty: Varies by state and property value, though some first-home buyer concessions may apply

(use this link to estimate the cost of duty)https://www.visionabacus.net/Tools/B3/SuiteA/Z200/MFAA/Stamp_Duty_Calculator/BlackRed

·         Building and pest inspections: Typically $400-$800

·         Conveyancing/legal fees: Usually $1,500-$3,000

·         Loan application fees: Varies by lender

·         Moving costs

·         Immediate repairs or renovations (if needed)

·         Ongoing costs: council rates, strata fees, insurance, utilities, maintenance

Is This Scheme Right for You?

The First Home Guarantee can be an excellent tool for well-prepared buyers with stable incomes who are ready to commit to homeownership. However, it's not suitable for everyone.

You should seriously consider the scheme if:

·         You have a stable income sufficient to service mortgage repayments comfortably

·         You've been unable to save a 20% deposit within a reasonable timeframe

·         You've found a property that meets your needs and falls within the price caps

·         You plan to live in the property for at least several years

·         Your finances can withstand potential interest rate increases

You might want to reconsider if:

·         Your employment situation is unstable

·         You're stretching to meet minimum repayments at current rates

·         You're unsure about your medium-term living arrangements

·         You haven't completed the three-month preparation phase properly

·         You're buying primarily for investment purposes

Getting Professional Support

The First Home Guarantee application process involves coordination between multiple parties - lenders, government agencies, conveyancers, and potentially real estate agents. Having an experienced mortgage broker can help ensure everything runs smoothly and you don't miss critical steps.

I help first-home buyers navigate this process every day. If you're considering applying for the First Home Guarantee, let's have a conversation about your situation. I can help you understand your realistic borrowing capacity, prepare a strong application, and choose the right lender for your circumstances.

Contact me to arrange a consultation - there's no obligation, and we can discuss whether this scheme is the right path for you.

This guide provides general information about the First Home Guarantee scheme and should not be considered personal financial advice. Lending criteria and individual circumstances vary. Please consult with a qualified mortgage broker or financial advisor about your specific situation.