5% Deposit Scheme Family Loan Guide 2025

By The Chipkie Team, Personal Finance Editorial Team  ·  Last updated 3 July 2026

Buying your first home in Australia has never felt harder. With median dwelling prices in capital cities sitting well above $700,000 in many markets, saving a full 20% deposit can take years — sometimes a decade or more. That’s exactly why the Australian Government’s First Home Guarantee (FHBG) lets eligible buyers purchase with as little as a 5% deposit, and why so many families are stepping in to help bridge the gap. Understanding how a 5% deposit scheme works alongside a family loan is critical if you want to avoid costly mistakes that could affect both the buyer and the parent helping out.

Whether your parents are gifting, lending, or guaranteeing part of your deposit, the rules around government deposit schemes and family contributions are more nuanced than most people realise. Get this wrong and you could lose your eligibility, trigger unexpected tax consequences, or damage a family relationship. This guide walks you through how to get it right in 2025.

Key Takeaways

• The First Home Guarantee (FHBG) allows eligible buyers to purchase with just 5% deposit without paying Lenders Mortgage Insurance (LMI), with the government guaranteeing up to 15% of the property value.
• Lenders generally accept family contributions toward the 5% deposit, but the source of funds must be clearly documented — and whether it’s a gift or a loan matters enormously to the bank.
• If a parent provides a loan (not a gift), the lender may count the repayment obligation against your borrowing capacity, potentially reducing the amount you can borrow.
• The ATO may treat family money transfers as assessable income, a loan, or a gift — each with different tax implications — so proper documentation is essential.
• A formal family loan agreement protects both parties and satisfies lender and ATO requirements, reducing the risk of disputes and compliance issues.

What is the First Home Guarantee and how does a 5% deposit work?

The First Home Guarantee (FHBG), administered by Housing Australia, allows eligible first home buyers to purchase a property with a deposit as low as 5% without paying Lenders Mortgage Insurance (LMI). The government guarantees the difference between the buyer’s deposit and 20%, meaning the lender’s risk is covered without the buyer needing to save a full 20%.

Here’s what you need to know about eligibility in 2025:

• Income caps: $125,000 per year for singles, $200,000 combined for couples (based on taxable income from the previous financial year).
• Citizenship: Must be an Australian citizen or permanent resident aged 18 or over.
• Property price caps: Vary by state and region — for example, $900,000 in Sydney and $800,000 in Melbourne as of 2024–25.
• Limited places: 35,000 places are available per financial year across FHBG, Regional First Home Buyer Guarantee, and Family Home Guarantee combined.
• Owner-occupier requirement: You must intend to live in the property as your principal place of residence.

According to ASIC’s MoneySmart, skipping LMI through the FHBG can save buyers anywhere from $4,000 to $35,000 depending on the loan size — a significant saving that makes this scheme highly attractive. But the 5% deposit itself still needs to come from somewhere, and that’s where family help enters the picture.

Can parents help with the deposit under the government deposit scheme?

Yes, parents can contribute toward the 5% minimum deposit under the FHBG, but lenders scrutinise the source of funds carefully. Most participating lenders require at least some portion of the deposit to be “genuine savings” — meaning money the buyer has accumulated over time — though requirements vary between institutions. A first home guarantee family gift or loan can often make up the remainder.

The critical distinction lenders care about is whether the family contribution is a gift or a loan:

Important nuance most guides miss: If your parents say it’s a “gift” to the bank but privately expect repayment, this creates serious problems. The lender has assessed your capacity based on no repayment obligation. If the truth comes out — through a dispute, separation, or audit — it could constitute misrepresentation on your mortgage application. Our experience working with borrowers and lenders shows this is far more common than people think, and the consequences can include loan default or even fraud allegations.

How does the ATO treat family money used for a home deposit?

The Australian Taxation Office doesn’t tax genuine gifts between family members in most circumstances — Australia has no gift tax. However, the ATO does look closely at whether a transfer is genuinely a gift, a loan, or potentially something else entirely. An FHBG family contribution must be properly characterised from the outset.

• Genuine gift: No tax implications for the recipient. The parent cannot claim a deduction. No repayment expected.
• Family loan at interest: The interest income is assessable to the parent. If the interest rate is below the ATO’s benchmark rate and the loan is connected to a trust or company, Division 7A rules may apply, creating deemed dividends.
• Interest-free family loan: Generally no income tax implications, but the loan should still be documented to avoid it being recharacterised by the ATO or a court as a gift.

According to the ATO, loans between related parties must reflect genuine commercial arrangements to be treated as loans for tax purposes. Without a written agreement specifying the principal amount, repayment schedule, and any interest, the ATO may treat the arrangement differently than the family intended — particularly if the parent later tries to claim a bad debt deduction.

This is exactly why a clear distinction between a gift and a loan matters so much for tax purposes.

What should a family loan agreement include when buying with 5% deposit?

A properly structured family loan agreement protects both the buyer and the parent helping with the deposit. It satisfies lender requirements, provides ATO-compliant documentation, and — most importantly — prevents the kind of misunderstandings that tear families apart. When you’re combining a government deposit scheme with parent help, the agreement needs to address several specific issues.

Your family loan agreement should cover, at minimum:

1. Loan amount: The exact dollar amount being provided, clearly stated.
2. Purpose: That the funds are for a property deposit under the FHBG (or general home purchase).
3. Interest rate: Whether the loan is interest-free or at a specified rate. If charging interest, ensure the rate is reasonable — our guide to setting a fair interest rate on a family loan walks through the considerations.
4. Repayment schedule: Monthly, quarterly, or lump sum — with specific dates or triggers.
5. What happens if the property is sold: Does the family loan get repaid from proceeds? In what priority?
6. Default provisions: What happens if repayments are missed — grace periods, notice requirements.
7. Relationship breakdown clause: If the buyer separates from a partner, how is the family loan treated in any property settlement?

A point most articles skip: If you’re buying with a partner and only one set of parents is contributing, the agreement should specify whether the family loan attaches to both buyers jointly and severally, or only to their child. Under joint and several liability principles, a lender can pursue either party for 100% of a joint debt — but a family loan agreement can be structured differently. This matters enormously if the relationship ends.

What are the biggest risks of combining a family loan with the FHBG?

Combining a family loan with the First Home Guarantee creates specific risks that buyers and their parents should understand before committing. Getting independent legal and financial advice is strongly recommended, but here are the key issues we consistently see across the agreements our users create:

• Reduced borrowing capacity: If the lender knows about the family loan, your serviceability assessment includes those repayments. Under ASIC’s responsible lending obligations in the National Consumer Credit Protection Act (NCCP), lenders must verify you can afford all commitments.
• Genuine savings shortfall: Some lenders require 2–5% genuine savings even under the FHBG. If 100% of your deposit comes from family, you may not meet this requirement.
• Stamp duty implications: In most states, first-home-buyer stamp duty concessions are per-person. If you’re buying with someone who already owns property, you may lose concessions — and a family loan won’t change that.
• Future borrowing capacity for parents: If the parent borrows against their own home to fund your deposit, that liability sits on their balance sheet and may affect their retirement planning or future credit applications.
• Undocumented arrangements: Without a formal written agreement, proving the terms of a verbal family loan becomes extraordinarily difficult if a dispute arises — something explored in detail in our guide to proving a verbal family loan in court.

Does a family gift avoid these problems entirely?

A genuine family gift sidesteps many borrowing capacity issues because the lender won’t count it as an ongoing liability. However, parents must provide a signed statutory declaration or gift letter confirming no repayment is expected. If parents later change their mind and demand repayment, they’ll have limited legal recourse because the documentation says “gift.” Both parties must be genuinely comfortable with the arrangement being non-refundable.

Can you use the Family Home Guarantee instead of the FHBG?

The Family Home Guarantee (FHG) is a separate scheme targeting eligible single parents or single legal guardians with at least one dependent child. It allows purchases with as little as a 2% deposit, with the government guaranteeing up to 18%. Family contributions can still assist with the deposit under the FHG, subject to the same lender documentation requirements as the FHBG. Check Housing Australia’s website for current eligibility criteria and place availability.

What happens if you refinance or sell the property?

If you sell the FHBG property or refinance to a non-participating lender, the government guarantee is released. If your equity hasn’t grown past 20%, you may need to pay LMI at that point. Any family loan should specify whether it becomes immediately repayable on sale. Capital Gains Tax generally doesn’t apply to your principal place of residence, but if circumstances change and the property becomes an investment, the 50% CGT discount applies to assets held over 12 months, apportioned by ownership share.

How do you get started with a family-assisted 5% deposit purchase?

The process of combining a government deposit scheme with parent help requires coordination between multiple parties. Here’s a practical step-by-step approach:

1. Check FHBG eligibility through Housing Australia or a participating lender — confirm income caps, property price limits, and place availability.
2. Agree on the family arrangement — gift or loan, amount, and terms — before approaching a lender.
3. Document everything — create a formal family loan agreement or gift statutory declaration before settlement.
4. Get pre-approval from a participating lender, disclosing the family contribution and providing supporting documentation.
5. Seek independent advice — both the buyer and the parent should get separate legal and financial advice to understand their rights and obligations.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or tax advice. Australian laws and lending criteria vary by state and territory and may change. Always consult a licensed financial adviser, solicitor, or conveyancer before entering into any financial arrangement or property purchase with another party.