The First Home Loan Deposit Scheme is now in effect, starting from 1 January 2020. The government – backed scheme is designed to help Australians get into their first home sooner. Here’s everything you need to know.
The National Housing Finance and Investment Corporation (NHFIC) has designed this scheme intended to help first home buyers purchase their own home by foregoing lender’s mortgage insurance.
It provides a guarantee that will allow eligible first home buyers on low and middle incomes to purchase a home with a deposit of as little as 5%.
The Scheme will support up to 10,000 loans each financial year.
How does it work?
The scheme promises to give eligible first home buyers a “leg-up” when buying their first home, by allowing them to get a home loan with a deposit of as little as 5%.
To put it simply, the government is agreeing to be ‘guarantor’ to loans taken under the scheme. In addition, buyers will not have to worry about taking out Lenders Mortgage Insurance.
Ordinarily, when a buyer with a deposit of less than 20% takes out a home loan, they are required to take out Lenders Mortgage Insurance, a form of insurance designed to protect the lender in the event of a loan default.
Instead, buyers will be able to put all this money towards the deposit, potentially saving approximately $10,000 in insurance costs and, in theory, allowing them to enter the market sooner.
Show me the fine print
The scheme will not be available to everyone and will operate on a first come first served basis- so make sure to get in quick. To be eligible, you will need to be a first home buyer on an income of up to $125,000 annually (or up to $200,000 for a couple). The scheme will also be capped at 10,000 loans per year, meaning it will only be available to less than 10% of the 110,000 first home buyers who take out loans every year.
In addition, you will need to have already saved for a deposit of between 5 to 20% of the property’s value. This means if you are looking at a $600,000 home, you will need to have at least $30,000 in the bank to cover the deposit alone.
Buyers who plan to take up the scheme should also be cautioned that it is not ‘free money’. Banks and lenders will still be carrying out all their regular checks to ensure the borrower will be able to meet their repayments.
Eligibility for the scheme
To apply to the Scheme, you’ll have to meet the following eligibility criteria. You need to be able to provide documentation of your eligibility to secure your position.
Eligibility criteria includes:
- All applicants must be First Home buyers
- Individuals must have earned less than $125,000 and couples less than $200,000 in the last financial year. Couples must be married or de-facto
- All applicants must be at least 18 years of age, Australian citizens and have a Medicare card
- There are property price caps which vary depending on the location in which you buy. You can work out your property price cap using NHFIC’s online tool
NHFIC’s Scheme eligibility tool
How much can I borrow?
Eligibility for the scheme will also depend on the region you are buying in. The NHFIC has developed a tool to help first home buyers find out the property price threshold for the suburb in which they are looking to purchase a property. Each state and region comes under a different property threshold.
How can I apply?
The First Home Loan Deposit Scheme started on 1 January 2020.
You will need to approach a participating lender to lodge an application.
It is recommended that any prospective applicants seek independent legal or financial advice when devising their loan arrangements.
Which lenders are involved?
The NHFIC has appointed 27 lenders on the panel of residential mortgage lenders to offer guarantees under the Scheme.
The major lenders that will be involved in the scheme are Commonwealth Bank and NAB, who are expected to be able to provide 50 percent of the 10,000 loans guaranteed loans for each financial year.
The 25 non-major lenders who are involved, many of which mutual banks or credit unions, will start offering guaranteed loans from 1 February.
Words by Kathryn Lee
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