Struggling to save for a 20% deposit on your first home? A recent Australian Government initiative may allow you to buy your first home with a much smaller deposit, helping you take that first step to homeownership years sooner.
What is the First Home Loan Deposit Scheme?
The First Home Loan Deposit Scheme (FHLDS) provides lenders with a Government-backed guarantee that allows some eligible first home buyers to purchase a home with a deposit of as little as 5%.
Who is eligible?
- Australian citizens over the age of 18 who have saved at least 5% but less than 20% of the value of an eligible property. If applying as a couple, both must be Australian citizens.
- Genuine first home buyers only.
- Singles with a taxable income of no more than $120,000, or couples with a combined taxable income of no more than $200,000.
- Owner-occupiers only. If you move out of the property it will cease to be covered by the scheme.
- The price of the property must be less than the price cap. Price caps range from $250,000 in rural South Australia to $700,000 in Sydney and some other parts of NSW.
All of these criteria must be met.
What are the benefits?
Normally, lenders require home buyers with a deposit of less than 20% of the purchase price to take out mortgage insurance. This helps to protect the lender if the borrower cannot repay the loan. Under the FHLDS the Australian Government provides a guarantee to the lender, which means you won’t need mortgage insurance. That saves you money, but more significantly, because you don’t need to save as big a deposit, you’ll be able to buy your first home a lot sooner.
What are the disadvantages?
Purchasing a home with a smaller deposit means you will need to take out a bigger home loan, leading to greater total interest payments over the life of the loan.
Will all eligible home buyers benefit from the scheme?
No. Only 10,000 applicants are expected to receive support each financial year. Currently, around 108,000 homes a year are sold to first time buyers, so chances are that, even if you meet all the qualifications, you may not receive approval under the FHLDS. It is, however, still worth applying. If you receive conditional approval for a loan, you have 90 days to find and settle on a property.
Can the FHLDS be used in conjunction with other first home buyer incentives?
All states and territories offer support to first home buyers, mainly in the form of the First Home Owners Grant, which is basically a cash handout, and in reduced stamp duty. These can be used in conjunction with the FHLDS. Be aware, however, that different eligibility criteria apply to each scheme and that limits and thresholds vary from state to state. Some incentives only apply to newly built homes, and property value cut-offs may differ. Depending on personal circumstances you may be eligible for some schemes, but not others.
How do you apply?
The National Housing Finance and Investment Corporation has appointed a number of major banks and non-major lenders to provide loans under the scheme. Search for “FHLDS participating lenders” to find them.
Applications are made through participating lenders and their authorised representatives, including mortgage brokers. These lenders and brokers will be able to assess your eligibility for both the FHLDS and other first home buyer incentives and guide you through the application process.