First Time Builder
First Home Loan Deposit Scheme Explained
As part of the 2021-2022 Federal Budget, the federal government has committed to providing up to 10,000 Australians with support to purchase their first home sooner.
The First Home Loan Deposit Scheme guarantees eligible applicants classified as ‘low and middle income’ to purchase a home with a deposit of as little as 5%.
What is the 2022 First Home Loan Deposit Scheme?
The scheme lets first home buyers take out a mortgage with just a 5% deposit to avoid paying lenders mortgage insurance (LMI) fees. In the past, banks and lenders usually require purchasers to have 20% of the property’s value saved already to be exempt from LMI fees. With the release of the budget, the government will underwrite the loan as part of the scheme so that LMI no longer applies.
With the federal government acting as your guarantor, it’s now far easier to be approved for a home loan without less in savings. The lender, however, will still do their normal checks on your financial situation.
The intention behind these recent changes is to make it easier for first time home buyers to secure their mortgage. For home builders, this change to the deposit amount offers you more savings to go towards your build.
Are you eligible for the First Home Owner Scheme?
To be eligible for the First Home Owner Scheme, a few conditions must be considered.
- Applicants must be Australian citizens who are at least 18 years of age.
- Individuals applying for the scheme can earn a maximum of $125,000 per year, and a couple’s earnings can be a combined total of $200,000.
- Couples are only eligible for the Scheme if they are married or in a de facto relationship. Other persons buying together, including siblings, parent/child or friends, are not eligible.
- Applicants must have a deposit of between 5% and 20% of the property’s value.
- The scheme will only serve 10,000 applications per year, on a first come first serve basis.
- Properties that are being purchased under the scheme must be classed as an ‘entry property’ and will not include high-value properties.
- Price caps are determined by region. A full list of price caps is outlined below.
|Region||Price Cap ($AUD)|
|NSW – capital city, regional centres (Newcastle, Lake Macquarie & Illawarra)||$800,000|
|NSW – other||$600,000|
|VIC – capital city, regional centre (Geelong)||$700,000|
|VIC – other||$500,000|
|QLD – capital city, regional centres (Gold Coast & Sunshine Coast)||$600,000|
|QLD – other||$450,000|
|WA – capital city||$500,000|
|WA – other||$400,000|
|SA – capital city||$500,000|
|SA – other||$350,000|
|TAS – capital city||$500,000|
|TAS – other||$400,000|
|Jervis Bay Territory & Norfolk Island||$550,000|
|Christmas Island & Cocos (Keeling) Island||$400,000|
How do I apply?
Applications for the First Home Load Deposit Scheme can be lodged through your chosen lender and their representatives. The scheme does not accept applications directly.
There are 27 lenders who are approved to offer guarantees under the scheme; the full list can be found here.
What is a loan guarantor?
A loan guarantor is a person who agrees to repay the debt if a loanee is having to default on their agreed repayments. In this case, the guarantor in your home loan is the federal government.
The presence of a guarantor helps to make securing a mortgage a more seamless process so this scheme will hopefully make home buying more accessible for Australians.
How much will I save with the First Home Loan Deposit scheme?
The government says that you could save around $10,000 by not paying for Lender’s Mortgage Insurance. This is a good ballpark figure, but the specifics of how much you would save depends on the particulars of your loan. These factors include loan size, deposit size and lender terms and conditions.
It’s important to remember, this scheme isn’t the First Home Owner’s Grant. The federal government isn’t paying for a portion of your home but rather making it easier for home buyers to get a mortgage.
Can I use this scheme alongside the First Home Owner’s Grant?
Yes! You can apply for this federal government scheme as well as any other schemes that may be offered by your state or territory. Keep in mind that the eligibility requirements may differ between the grant and scheme.
Do I have to buy a new house or apartment?
The properties that are included as part of the scheme do not have to be newly built. While this is an option, you can also utilise this scheme to purchase an existing house, townhouse, or apartment. You can also purchase a house and land package, land with a contract to build or an off-the-plan apartment or townhouse. These are all possible to buy as part of the First Home Loan Deposit Scheme.
Are there risks involved in getting a low deposit home loan?
There are some risks that come with low deposit home loans. Lower deposits mean borrowers may take on more debt and end up paying back more interest. Having lower equity in your home from the start may also cause difficulties when refinancing or switching lenders. Some lenders may also offer less competitively priced loans based on your lower savings.
The information contained in this article is not legal or financial advice and should not be relied upon as a substitute for professional advice. Consumers should make their own independent inquiries and consider the need to obtain any professional advice relevant to their circumstances. Further information is available at http://www.firsthome.gov.au/ and https://www.nhfic.gov.au/what-we-do/fhlds.