Government schemes can reduce the deposit you need or waive Lenders Mortgage Insurance, but they won't automatically increase how much a lender will let you borrow.
If you're on a permanent visa and looking to buy in Australia, you've likely come across programs like the Australian Government 5% Deposit Scheme. This can cut your upfront costs, which is genuinely helpful. But they're often misunderstood as a way to borrow more or bypass normal lending criteria. They don't do that. Your income, expenses, and credit history still determine what you can borrow, and lenders still assess your application the same way they would for any other borrower.
Understanding how these schemes fit into your overall home loan strategy matters, especially when you're weighing up whether to apply or whether another route gives you more flexibility.
How Government Guarantees Reduce Your Deposit Without Changing Your Borrowing Power
A government guarantee allows you to borrow with a smaller deposit by having the government guarantee part of the loan to the lender. Under the Australian Government 5% Deposit Scheme, for example, you can borrow with as little as a 5% deposit without paying LMI. That can save you tens of thousands of dollars upfront, which is significant if you're trying to enter the market sooner.
But the guarantee doesn't change your borrowing capacity. If a lender assesses that you can service a loan of $500,000 based on your income and expenses, that figure stays the same whether you're using a guarantee or not. The scheme reduces what you need to save, not what you're approved to borrow.
Consider a buyer on a permanent visa earning $85,000 a year with minimal debts. A lender might approve them for a loan amount of $450,000 based on their income. With a 5% deposit through the scheme, they could buy a property valued at around $473,000 without LMI. Without the guarantee, they'd need a 20% deposit to avoid LMI, which would mean saving close to $95,000. The guarantee removes that barrier, but it doesn't increase the $450,000 loan amount the lender is willing to provide.
This distinction matters because some buyers assume the scheme will let them afford a more expensive property. It won't. It lets you buy sooner with less saved, which is a different outcome.
Permanent Visa Holders and Eligibility for the Australian Government 5% Deposit Scheme
Permanent residents are eligible for the scheme, provided they meet the property price cap for the area they are buying and haven't owned property in Australia in the last 10 years. You also need to live in the property as your principal place of residence.
If you're buying on a permanent visa, you're treated the same as an Australian citizen under these schemes. That means you have the same access to government guarantees, but you're also held to the same serviceability standards by lenders. Your visa status doesn't limit your eligibility for the scheme, but it also doesn't give you preferential treatment in the approval process.
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What Government Schemes Don't Cover
Government guarantees reduce or remove LMI, but they don't cover stamp duty, conveyancing, inspections, or other settlement costs. Those expenses still need to come from your genuine savings or be factored into your overall budget.
In some states, first home buyers can access stamp duty concessions or exemptions, which can reduce upfront costs further. But these are separate from the scheme and depend on the property price and your state's specific thresholds. Combining a government guarantee with a stamp duty concession can make a significant difference to what you need upfront, but neither changes the loan amount a lender will approve.
When a Larger Deposit Gives You More Options Than a Guarantee
A government guarantee can get you into the market faster, but it also locks you into specific lender panels and property price limits. Not all lenders participate in the scheme, which can narrow your options if you're looking for particular loan features like an offset account or the ability to make extra repayments without penalty.
If you're able to save a 10% or 15% deposit and pay a smaller amount of LMI, you might have access to a wider range of lenders and more competitive loan products. In some cases, that trade-off is worth it, especially if the lender offers a better variable or fixed rate structure or more flexible loan terms.
For buyers who are close to a 20% deposit, waiting a few more months to avoid LMI altogether can also make sense. The scheme is most useful when you're ready to buy now and don't want to wait, but it's not always the most cost-effective option over the life of the loan.
How Split Rate Structures Work With Low Deposit Loans
If you're using a government guarantee to buy with a smaller deposit, you can still choose a split rate structure, where part of your loan is on a fixed interest rate and part is on a variable rate. This can give you some protection against rate rises while keeping the flexibility to make extra repayments on the variable portion.
Not all lenders offer split loans under the scheme, so it's worth checking which loan products are available through participating lenders. If rate stability is important to you, a split loan can be a useful way to manage that without locking in your entire loan amount.
Some lenders also offer portable loans, which let you take your existing loan with you if you move to a new property. That can be helpful if you're buying a starter property and expect to upgrade within a few years. Again, availability varies by lender, so it's worth comparing your options before committing.
How Pre-Approval Works When You're Using a Government Guarantee
Home loan pre-approval works the same way whether you're using a guarantee or not. A lender assesses your income, expenses, and credit history to determine how much they're willing to lend you. Pre-approval gives you a clear budget and shows sellers you're a serious buyer.
If you're planning to use a government guarantee, it's worth flagging that with your broker or lender during the pre-approval process. That way, they can confirm the lender participates in the scheme and that the property you're targeting falls within the price caps for your state.
Pre-approval also gives you time to confirm you meet the eligibility criteria for the scheme before you start making offers. If you're over the income threshold or have previously owned property, you'll know upfront that you need to plan for a different deposit structure.
Call one of our team or book an appointment at a time that works for you. We'll help you work out whether a government guarantee suits your situation or whether another approach gives you more flexibility and lower costs over the long term.
