Subject to agreement with the states and territories, Housing Minister Julie Collins says otherwise eligible applicants who would have missed the April 30 cut-off will now have until the end of June 2025 to provide supporting documentation.
The extension will only apply to existing, already-approved applicants who have formal approval for off-the-plan purchases or renovations.
This will support those who entered into financial commitments on the basis that they would receive the grant but were affected by supply constraints and construction delays, Ms Collins said on Sunday.
"Too many Australians stood to miss out on support they believed they would receive through no fault of their own," she said.
"This decision will not cost the budget but it will ease the burden on families right across the country who are relying on this grant."
The popular $25,000 handouts were issued during the pandemic but later came in for heavy criticism.
While stimulating the construction sector as they were designed to, the home builder and renovator payments went too far and contributed to "overheating" as costs hit record highs, according to experts.
A KPMG review of the HomeBuilder program done on behalf of Treasury in November found the grants were not the only factor, with external supply chain issues and state level construction grants also adding fuel to the fire.
Ms Collins said the extension would draw a line under the former government's mismanagement of the HomeBuilder program.
Lengthy delays had meant thousands of applicants who had purchased off-the-plan apartments stood to miss out because title documents that needed to be submitted to prove eligibility could not be issued until construction was complete, she said.
The Property Council of Australia welcomed the extension.
Chief executive Mike Zorbas said the "new home aspect of HomeBuilder was a remarkably successful job saver and confidence booster during and after the most severe health related lockdowns in more than a century".
"Retaining the positive promise of a scheme we hope is never needed again, is thoughtful public policy," he said.
The grants program was launched in June 2020, offering up to $25,000 towards new homes and large renovations. In 2021, $15,000 grants were introduced for eligible owner-occupiers.
During this period, the construction sector was plagued by acute labour, material and land shortages, with input prices lifting 17.3 per cent between June 2021 and June 2022, according to Australian Bureau of Statistics data.
