What happens if the bank finds out I have tenants in my First Home Guarantee property?

The lender can move your loan out of the scheme. Because the guarantee was what let you borrow at 95% without lenders mortgage insurance, removing it can mean an LMI premium, a change of rate to an investment product, and additional fees. It is far cheaper to plan the exit before the tenants go in.

How do I get out of the First Home Guarantee scheme?

You get your loan balance to 80% or less of the property's current value, then refinance or have the guarantee released. Growth in the property does most of the work. On a home bought at $600,000 that is now worth $720,000, a loan of $545,000 is already at roughly 76%, which is under the line.

Are there exemptions that let me move out and keep the First Home Guarantee?

Housing Australia allows for exemptions in certain circumstances, and they are assessed by your participating lender rather than by you. Defence postings and other genuine changes of circumstance are the sort of thing that gets looked at. The rule is to raise it with your lender before you move out, not after.

Home / Straight Answers / First Home Guarantee and tenants

Straight Answers · First Home Guarantee

Can I rent out the home I bought under the First Home Guarantee?

Bayley Clarke · Mortgage broker on the road · Last checked 19 August 2026 · 4 min read

The short answer

Not while the guarantee is still attached to your loan. The scheme requires you to live in the property, and if tenants move in without your lender knowing, the lender can take the guarantee off. That is where lenders mortgage insurance and extra costs land back on you, the exact costs the scheme saved you in the first place.

There is a clean way out, and it comes down to one number. Once your loan sits at 80% of what the property is worth today, the guarantee has nothing left to do and the lender will support you putting tenants in. Getting to that number is the whole job.

The 60 second version. The rest of this page is the detail underneath it.

The rule that came attached to the 5% deposit

The First Home Guarantee is the government standing behind part of your loan so you can buy with a 5% deposit and skip lenders mortgage insurance. On a $600,000 purchase that is roughly $20,000 to $25,000 of insurance you never paid, and years you did not spend saving the rest of a 20% deposit.

It is a genuinely good deal. It also comes with one condition that people forget the moment life changes: while the guarantee is on your loan, you have to be living in the property. It is an owner occupier scheme. An investment property was never what it was for.

Nobody forgets this on settlement day. They forget it three years later when a job comes up interstate, or a relationship changes, or the maths on renting it out suddenly looks good.

What actually happens when the bank finds out

People assume nothing happens. Something happens.

If you stop living in the property without an approved exemption, the guarantee comes off your loan. Housing Australia's own wording is that your participating lender may require you to pay lenders mortgage insurance or other significant costs relating to your loan.

Think about what that means in practice. The guarantee is the only reason you were allowed to borrow 95% without insurance. Take it away and you are a borrower at 95% with no insurance, which is not a loan any lender will simply leave alone. So the fix lands on you: an LMI premium calculated on today's balance, often a move onto an investment rate, and fees on top.

And lenders do find out. Rental income shows up in a tax return, a change of address gets lodged, insurance gets switched to a landlord policy, or you come back for a refinance and the file gets read properly. It is not a secret you get to keep indefinitely.

The 80% exit, and why growth usually does the work

Here is the part almost nobody knows. The guarantee is not a life sentence. It comes off once your loan is 80% or less of what the property is worth now, not what you paid for it. At that point you no longer need the government standing behind anything, and the lender has no reason to object to tenants.

Which means two things move you toward the exit at the same time: the loan going down, and the value going up. Most people who bought a few years ago are much closer than they think.

Two people, same purchase	Already free	Not yet
Bought for	$600,000	$600,000
Worth today	$720,000	$620,000
Loan balance today	$545,000	$555,000
Loan against today's value	76%	90%
Can tenants go in?	Yes, once you refinance out of the scheme	Not without triggering the costs

Illustrative numbers, not a quote. The point is the gap between the two columns is mostly growth, not discipline. One had a good few years in their market, the other did not.

If you are in the right hand column, the options are to pay the balance down to the line, wait for the value to catch up, or accept the costs of coming out early with your eyes open. All three are decisions. None of them is an accident.

Before you assume you are stuck

Exemptions exist. Housing Australia allows for circumstances where you stop living in the property and the guarantee is not simply pulled. Your participating lender assesses it, not you, and not a forum post.
Ask before you move, not after. The conversation goes very differently when it starts with a question rather than with a landlord insurance policy the lender found on its own.
A valuation is free to order and often surprising. Plenty of people are already under 80% and have no idea, because they are measuring against the purchase price instead of today's value.
The exit is a refinance, and refinances have their own costs. Worth knowing what those are before you decide the timing. Here is what refinancing actually costs.

The order of operations

Almost every expensive version of this story is the same mistake: the tenants went in first and the paperwork got sorted out afterwards. Reverse it and the whole thing is routine.

Get the current value. Work out where the loan sits against it. If you are at or under 80%, refinance out of the scheme, then advertise. If you are over, decide whether you are closing the gap or waiting, and put a date on it. Then advertise.

Since October 2025 the scheme has had no income caps, no place limits and much higher property price caps, so there are a great many more people holding one of these loans than there were two years ago. Which means a great many more people about to hit this exact question without knowing it exists.

Want to know which side of 80% you're on?

Give me half an hour and I'll pull the current value, put your balance against it, and tell you whether you're free to rent it out or how far off you are. If the answer is that you should wait eighteen months, I'll tell you that too.

Book a 30 minute call Call 0437 189 939

No application, no credit check, nothing on your file. Just the numbers.

Next question

What does refinancing actually cost?

Coming out of the scheme is a refinance. Worth knowing the real number before you plan the timing.