HOW MUCH TO SAVE FOR YOUR FIRST HOME DEPOSIT? A GUIDE TO CURRENT CHANGES

Pursuing the “Australian Dream” and have your first home as your current financial goal? Recent changes to government schemes mean this may be more achievable than it was previously. Additionally, there are tax-effective ways to boost your first home deposit savings along the way.

You May Need Less Than You Think

From 1 October 2025, the Australian Government’s Home Guarantee Scheme is expanding significantly. This makes entry into the housing market and homeownership more accessible than it has been.

What’s Changed with the Home Guarantee Scheme?

The enhanced scheme removes the previous limits on place numbers making it more widely available. Every eligible Australian first home buyer can now apply with a 5% first home deposit and avoid Lenders Mortgage Insurance.

Key changes include:

• Elimination of income caps for higher-earning first home buyers
• Find out the new property price caps for your area using Housing Australia’s price cap tool (examples of new caps include: Sydney $1.5m, Melbourne $950k, Brisbane $1.0m, Perth $850k, Adelaide $900k, ACT $1.0m)
• Simplified access in regional areas
• Available through over 30 participating lenders nationwide

Defence members can also access these through their existing DHOAS loan providers.

Should You Save More Than 5%?

Just because you can buy with a 5% home deposit doesn’t mean you shouldn’t consider saving more. Here’s the reality: the less you borrow, the less you’ll pay in interest over the life of your loan. A larger first home deposit means a smaller loan amount. This translates to lower monthly repayments and substantially less interest paid over time.

The scheme’s key advantage is eliminating Lenders Mortgage Insurance (LMI). LMI can cost thousands of dollars and would normally be required for deposits under 20%.

Your Options with the New Scheme

This creates valuable opportunities for you.

You can enter the market sooner with 5% and avoid LMI entirely. Or you can choose to save a larger home deposit (10%, 15%, or more) to reduce your loan amount while still benefiting from the LMI waiver.

The best approach depends on your individual circumstances:

• How quickly are property prices rising in your area?
• What are your current rental costs?
• What is your savings capacity?

Using Your Super for Your First Home Deposit

While you are deciding how much to save, you may want to consider saving more tax-effectively. The First Home Super Saver Scheme (FHSS) allows you to use your superannuation to help build your first home deposit.

What is the First Home Super Saver Scheme?

The First Home Super Saver Scheme (FHSS) allows you to make voluntary contributions into your super fund specifically to save for your first home. Concessional contributions are taxed at 15%. This is usually less than your marginal income tax rate, giving you significant tax advantages over regular savings.

Contribution limits

• Up to $15,000 in any one financial year
• Maximum of $50,000 across all years

The ATO website has the complete contribution rules and current limits.

Why It Works Well for Defence Members

The FHSS is particularly suited to Defence life.

You can set up regular contributions through salary sacrifice. Make occasional personal contributions when circumstances allow. Contribute during deployments or exercises when expenses are lower.

If you are expecting a bonus, you can arrange to salary sacrifice it. You will need to set this up before you become entitled to the bonus.

Important warning for some Defence members: Contributions to defined benefit schemes or constitutionally protected funds aren’t eligible. Check the ATO’s ‘ineligible contributions’ list to ensure your super contributions count.

Ensure you are eligible:  ATO’s detailed eligibility requirements.

Additional Benefits for Defence Members

If you are in the ADF, the FHSS works alongside other Defence-specific housing benefits:

• Defence Home Ownership Assistance Scheme (DHOAS) – provides a monthly subsidy paid directly into your qualifying home loan
• Home Purchase Assistance Scheme (HPAS) – offers a one-off payment to help you buy a home in your posting location

These are separate Defence-only schemes that can complement your FHSS savings.

Special Considerations for Defence Members

As a permanent ADF member, you must genuinely intend to live in the property as your primary residence, not as an investment property. You need to occupy the property for at least 6 months within the first 12 months of ownership.

Posting and Deployment Scenarios

If you’re posted or deployed shortly after purchase, that’s generally acceptable. You need to initially move in with genuine intention and demonstrate you’ll occupy the property for at least 6 of the first 12 months.

Keep detailed records of:

• Posting orders
• Deployment dates
• When you move in and out

This documentation helps prove your genuine intention if the ATO has questions.

Examples That Work

Posting scenario:

Sarah uses FHSS to buy her first home in Brisbane. Two months after settlement, she’s posted to Darwin for 6 months.

Because she genuinely intended to live in the Brisbane property and occupied it for 2 months before her posting, she meets the requirements. She plans to return for at least 4 more months within the first 12 months.

Deployment scenario:

Mark buys using FHSS and moves in immediately. Three months later, he deploys overseas for eight months.

Since he lived in the property for 3 months and will return for another plus 3+ months within the first year, he satisfies the occupancy requirements.

What Doesn’t Work

Living in Defence housing while immediately renting out your FHSS property would likely breach the occupancy requirements. This applies even if you plan to move in later.

What If Plans Change?

Life happens. Sometimes home deposit plans don’t work out as expected.

If You Don’t Buy After Using FHSS

You have two main options:

• Recontribute the funds back into super: Generally, you have 12 months to recontribute as non-concessional contributions.
• Pay the 20% FHSS tax: If you choose not to recontribute.

Second Chance Opportunity

Good news if you’ve tried before. Recent changes in September 2024 mean some people who were previously unsuccessful might now be eligible.

Check the ATO website to see if the new rules apply to your situation.

Ready to start saving for your first home deposit?

Things to consider:

• Assess your situation: Consider property price growth in your target area, current rental costs, and savings capacity.
• Decide on your deposit target: With the new Home Guarantee Scheme, you can start with 5%. But consider if saving more suits your circumstances.
• Set up tax-effective saving: Talk to your super fund about the FHSS scheme if it suits your timeline.
• Speak with professionals: Consider consulting with a financial adviser or participating lender. They can help determine the optimal approach for your situation.
• Understand the process: Visit the ATO’s FHSS page for specific requirements. Check the Housing Australia website for Home Guarantee Scheme details.

The Bottom Line

The combination of the expanded Home Guarantee Scheme and the First Home Super Saver Scheme creates new opportunities. Defence members can enter the property market with just 5% deposit while avoiding LMI.

You can save that home deposit more tax-effectively through your super.

Remember, this isn’t just about saving money – it’s about saving smarter. By using the tax advantages of extra super contributions combined with the new government guarantees, you’re giving yourself a head start on homeownership.

The key is understanding the rules. Keep good records if you’re posted or deployed. Seek advice tailored to your specific Defence circumstances.

You may want to visit the official Housing Australia website to learn more, and the ATO’s FHSS information is available at ato.gov.au.