The First Home Guarantee (FHG) lets eligible first home buyers purchase a property with a small deposit without paying Lenders Mortgage Insurance (LMI), potentially saving thousands of dollars upfront. Whether the FHG or a standard LMI-inclusive loan saves more over time depends on your deposit size, loan structure, and personal circumstances – speak with a licensed mortgage broker to model both scenarios for your situation.
First Home Guarantee vs LMI: which saves more – 2026 AU guide
Buying your first home in Australia comes with a maze of acronyms, schemes, and fine print. Two of the most commonly compared options are the First Home Guarantee (FHG) and standard home loans that include Lenders Mortgage Insurance (LMI). Both can get you into the property market sooner than saving a full deposit, but they work differently and carry different long-term implications.
This guide explains how each option works, who qualifies, and what questions to ask your broker before deciding.
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What is the First Home Guarantee?
The First Home Guarantee is an Australian Government initiative administered by Housing Australia. Under the scheme, the government acts as a guarantor for a portion of your home loan, enabling eligible buyers to purchase a property with a smaller deposit without the lender requiring LMI. You can find full eligibility criteria and scheme details directly on the Housing Australia website.
The scheme is available for owner-occupied purchases only and is subject to property price caps that vary by location. Places are limited each financial year and are allocated on a first-come, first-served basis. The guarantee does not mean the government pays any part of your loan – it simply reduces the lender's risk, which is what ordinarily triggers the LMI requirement.
Eligibility is means-tested and applicants must meet income thresholds, citizenship requirements, and prior property ownership conditions. Because the rules update regularly, always check the Housing Australia website or ask your mortgage broker to confirm current criteria before you apply.
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What is Lenders Mortgage Insurance?
LMI is an insurance premium paid by the borrower to protect the lender (not you) if you default and the property sale does not cover the outstanding loan balance. It is typically required when a borrower's deposit falls below a certain threshold of the property's value, as assessed by the lender.
Despite protecting the lender, LMI is generally added to the loan principal or paid as an upfront cost by the borrower. This means you pay interest on that amount for the life of the loan if it is capitalised. LMI premiums are calculated by insurers based on the loan-to-value ratio (LVR) and loan size, and premiums differ between insurers and lenders. ASIC's MoneySmart provides a plain-language explanation of LMI at moneysmart.gov.au.
Because LMI is an insurance product, the premium is not refundable if you refinance or sell early, though partial refunds are sometimes available in specific circumstances – confirm the refund policy with your lender before proceeding.
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Key differences between the two options
| Feature | First Home Guarantee | Standard loan with LMI | |---|---|---| | Who pays the premium? | No premium – government guarantees the gap | Borrower pays LMI to insurer | | Who is protected? | Lender (via government guarantee) | Lender (via private insurer) | | Eligibility restrictions? | Yes – income caps, property price caps, citizenship | Generally no scheme eligibility required | | Property type limits? | Owner-occupied only | Investment and owner-occupied | | Place limits each year? | Yes – limited allocations per financial year | No – available to any qualifying borrower |*Note: No dollar figures appear in this table because premium amounts vary by lender, insurer, and loan size. Ask your broker or visit moneysmart.gov.au for indicative cost tools.*
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Which option could save you more?
This is the question most first home buyers want answered definitively, and honestly, the answer is: it depends.
The FHG removes an LMI cost entirely, which is a meaningful saving for buyers who qualify. However, if you do not meet the eligibility criteria – perhaps your income is above the threshold, or the property exceeds the price cap in your area – the FHG is simply not available to you, and LMI becomes the practical path forward.
For buyers who qualify for the FHG, the scheme can reduce upfront or capitalised costs significantly. For buyers who do not qualify but have a deposit close to the standard threshold, the LMI premium may be relatively modest and could be outweighed by benefits such as accessing a wider range of properties or lenders.
A best mortgage brokers in Sydney search can help you find licensed professionals who can run comparison calculations for your specific loan amount, deposit, and chosen property. The right answer is a number on a spreadsheet unique to your circumstances, not a generalisation.
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How a mortgage broker can help you compare
A licensed mortgage broker accredited with an Australian Credit Licence (ACL) holder is well placed to compare these options on your behalf. They have access to multiple lenders and can model the total cost of each path over your anticipated loan term.
When you meet a broker, ask them to:
- Show you the estimated LMI premium for your deposit level across several lenders - Check your eligibility for the FHG and any state-based equivalents - Compare the total repayments over five, ten, and twenty years for both scenarios - Explain whether any first home owner grants in your state could be stacked with either option
You can verify that any broker or credit adviser you engage holds the appropriate licence through the ASIC professional registers search. Brokers operating in Australia are regulated under the National Consumer Credit Protection Act 2009.
For a broader overview of what brokers charge and how they are remunerated, see our cost guide and methodology.
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State and territory variations to consider
Australia's property market is not uniform, and neither are the support schemes available to first home buyers. Several states and territories operate their own first home buyer grants, stamp duty concessions, or shared equity schemes that may interact with the FHG or an LMI-inclusive loan. These include schemes administered through state revenue offices and housing authorities.
Some schemes can be combined with the FHG; others cannot. Your eligibility for state-based grants may depend on the purchase method, property type, and whether you are buying new or established. Always confirm the current rules with your state revenue office or a licensed broker who works regularly in your target market.
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Questions to ask before you decide
Before committing to either path, consider asking yourself and your broker:
1. Do I currently meet the FHG income and property price cap requirements? 2. If I wait to save a larger deposit, how does that affect my timeline and total costs? 3. Am I purchasing in a location where FHG property price caps apply favourably? 4. Does my preferred lender participate in the First Home Guarantee scheme? 5. If I pay LMI, is it capitalised into the loan or paid upfront, and what is the refund policy?
There is no universally correct answer. The financial regulators and consumer advocates in Australia consistently recommend seeking advice from a qualified professional rather than relying on general comparisons. ASIC's MoneySmart at moneysmart.gov.au also provides free, independent tools and calculators that can assist your research.
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FAQ
Q: Can I use the First Home Guarantee with any lender? A: No. The FHG is only available through lenders approved by Housing Australia to participate in the scheme. The approved lender list is published and updated on the Housing Australia website. Q: Is LMI tax deductible for first home buyers? A: LMI deductibility depends on how the property is used and your individual tax circumstances. It is not deductible for owner-occupied purchases in most cases, but you should confirm this with a registered tax agent, as rules can change. Q: What happens to the government guarantee if I sell or refinance? A: The guarantee applies to the original loan. If you refinance or sell, the guarantee generally ends. Housing Australia publishes guidance on what happens in these scenarios, and your participating lender should explain the implications before settlement. Q: Can I use the FHG for investment properties? A: No. The First Home Guarantee is restricted to owner-occupied purchases. If you are purchasing an investment property, LMI through a private insurer is the relevant consideration.---
Sources
- ASIC MoneySmart – home loans and LMI explained - Housing Australia – First Home Guarantee - ASIC – Australian Credit Licence and professional register search - National Consumer Credit Protection Act 2009 - Reserve Bank of Australia – household finances and housing - APRA – authorised deposit-taking institution statistics
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Information in this article is general only and not financial or credit advice. Verify the details with the linked sources or an appropriately qualified Australian professional before relying on them.
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