You've saved a deposit. Maybe it's 5%, maybe 8%, maybe 12%. It's real money, built over real time. Then someone mentions Lenders Mortgage Insurance and the number attached to it gives you pause.
That reaction is reasonable. Understanding what LMI actually is, and what options currently exist to avoid it, helps you make a clearer decision about when and how to buy.
What LMI Is, and What It Isn't
LMI is insurance the borrower pays to protect the lender if the borrower defaults and the sale of the property doesn't cover the loan. It is typically required when your loan-to-value ratio (LVR) exceeds 80%, meaning your deposit is under 20%. LMI protects the lender, not you.
Based on analysis by money.com.au, LMI can cost around 1-5% of your home loan amount, depending on your LVR. On a $700,000 loan at 95% LVR, that is a real sum of money, paid by you, for a policy that covers the lender. Borrowers can pay for LMI either as a one-time upfront payment or by incorporating the cost into the overall loan. Adding LMI to the loan increases the overall loan balance, leading to higher monthly repayments and more interest over the life of the loan.
The point is worth sitting with: LMI is not a fee you pay once and forget. Capitalised into a 30-year loan, it compounds.
Two Schemes That Can Remove the LMI Cost
The First Home Guarantee
Under the First Home Guarantee, eligible buyers with a minimum 5% deposit are able to purchase a home without paying Lenders Mortgage Insurance. Housing Australia provides a guarantee of up to 15% of the property's value to participating lenders, allowing purchasers to borrow up to 95% of the property's value.
From 1 October 2025, the scheme expanded significantly. From 1 October 2025, the changes to the scheme meant no income caps, no waitlists and no Lenders Mortgage Insurance. No place limits: all Australian first home buyers who have saved a 5% deposit can apply. For example, Sydney's property price cap will increase from $900,000 to $1,500,000. Check the current cap for your specific suburb at Housing Australia, as caps vary by location and are reviewed periodically.
A few eligibility conditions matter:
- You must be a first home buyer, or a previous homeowner who has not owned a property in Australia in the past 10 years.
- You must live in the property as your principal place of residence; investment properties do not qualify.
- Any deposit between 5% and 19.99% gets the same LMI waiver, the government guarantees whatever sits between your deposit and 20%.
- You cannot apply directly to Housing Australia, only through a participating lender as part of a home loan application.
The First Home Super Saver Scheme
The First Home Super Saver Scheme (FHSS), administered by the ATO, is a separate tool that can help you build your deposit faster, often at a lower tax rate than saving in a standard bank account.
The FHSS is an Australian Government program administered by the ATO that helps you save a deposit for your first home using your super. It lets you make extra voluntary contributions to your super fund, grow your savings faster, and take advantage of lower tax rates.
You can contribute up to $15,000 per year and $50,000 in total. When you're ready to buy, you can apply to withdraw your savings plus associated earnings and use them towards your first home deposit. Eligible first home buyers can withdraw up to $50,000 individually, or $100,000 per couple, of voluntary super contributions plus associated earnings, to use toward a home deposit.
Because super is taxed at 15% rather than your marginal income tax rate, the FHSS scheme can meaningfully accelerate your deposit savings. The ATO will withhold tax based on your usual tax rate minus a 30% tax offset, or a flat rate of 17% if your usual rate cannot be determined.
The scheme has a specific process, and the order matters. The critical timing rule: you must request the FHSS determination before signing your purchase contract. The ATO says this may take between 15 and 20 business days after a valid release request. Factor this into your purchase timeline.
The FHSS scheme and the First Home Guarantee operate independently and can be used together. That combination, FHSS funds forming part of a 5% deposit, then the Guarantee covering the LMI, is worth discussing with a licensed broker and an accountant who knows the FHSS rules.
The Trade-Offs Worth Thinking Through
Avoidng LMI through the First Home Guarantee does not mean you're borrowing on the same terms as someone with a 20% deposit. You still need to consider the higher interest costs of having a low deposit, given you will be paying interest on a larger amount and may not qualify for lower interest rates.
A smaller deposit also means less equity buffer in the early years. If property values fall after purchase, you could find yourself in negative equity before you have had time to build a cushion through repayments. That is a scenario to think about honestly, not dismiss.
On the FHSS side, the process has real timing complexity. After the release request, you need to sign a contract to purchase or construct an eligible home within the required timeframe, unless you recontribute the relevant amount to super. Missing that window has tax consequences. The process is manageable, but it needs proper planning.
A Worked Example
Consider a buyer purchasing a $750,000 property in Melbourne.
Without any scheme: a 5% deposit is $37,500. The LVR sits at 95%, and at 95% LVR, indicative LMI premiums can exceed 3.5% of the loan amount, on a $712,500 loan, that could mean roughly $24,000 to $25,000 in LMI, either paid upfront or rolled into the loan and compounding over 30 years.
With the First Home Guarantee: the same 5% deposit qualifies. LMI cost: zero. The government guarantee covers the gap to 20%, and the lender treats the application as if a full 20% deposit were in place. The buyer's loan remains $712,500, but that LMI cost simply does not arise.
If that same buyer also used the FHSS over three financial years, contributing $15,000 each year, their accessible amount could be up to $50,000 in eligible contributions plus associated earnings. At a marginal tax rate of 34.5% (including Medicare), the tax saving compared to saving the same amount outside super is material, a licensed accountant can run the specific numbers for any individual's situation.
These figures are illustrative. They are not projections or guarantees of any outcome.
What to Do Next
Confirm your scheme eligibility. Check the current property price caps for your target suburb at Housing Australia and the FHSS eligibility conditions at ato.gov.au. Both schemes have rules that need to be verified against your specific circumstances by a licensed adviser or broker.
Talk to a mortgage broker before you sign anything. A broker who knows the participating lender panel can confirm whether your deposit, income, and property choice meet the First Home Guarantee criteria, and can factor in any FHSS release timeline so your finance and purchase contract align.
Speak with an accountant about the FHSS before making contributions. The tax treatment of FHSS withdrawals depends on your individual marginal rate and the type of contributions made. Getting this wrong can reduce the benefit considerably. If you are already contributing, request an FHSS determination through myGov before you begin seriously searching, not after you find a property.
If you want to understand how these schemes interact with the property selection and finance process, book a call with the EWC team or visit our services page to see how we coordinate the property and lending side for first home buyers.
General information only, not personal financial advice. Speak with a licensed adviser before acting.