First Home Loan Deposit Scheme 101
Maybe you’ve been planning to buy your first home for a while now and have your dream suburb in mind. You know the median house prices and have started saving, but have been struggling to save a full 20% deposit. Or, maybe you’ve only just started looking at purchasing a home. In both cases, you want to know if there are any government schemes that can help you to plan accordingly. Whatever your future goal is, knowing about the recently introduced First Home Loan Deposit Scheme (FHLDS) is beneficial. Because, this could mean the difference between thousands of dollars spent in Lenders Mortgage Insurance (LMI). On top of that, saving the time it takes you to enter the property market.
What is the First Home Loan Deposit Scheme and how does it work?
The Australian government implemented the First Home Loan Deposit Scheme to help eligible first home buyers purchase a home without having to save up the required 20% deposit in January. In other words, those who meet the scheme’s and lender’s criteria can have as little as 5% of a deposit. This is because they can apply to receive support from one of the 10,000 schemes released every financial year. Through the National Housing Finance and Investment Corporation (NHFIC), the government will then guarantee up to 15% of the remaining deposit’s shortfall. As so, that you can save LMI costs and fees.
How do you apply?
To apply for the First Home Loan Deposit Scheme for the 2020-2021 financial year you must:
- Get your Notice of Assessment of your taxable income for the previous financial year from the ATO;
- Check if you meet the eligibility criteria for the scheme; and
- Let your lender know that you are interested in applying for the scheme.
Your lender will then assess if you are eligible for the scheme based on whether or not you:
- Are an Australian Citizen at least 18 years of age, and hold a Medicare card;
- Can demonstrate that you have a minimum deposit of at least 5% in genuine savings (funds saved gradually over a period of at least three months) for the property you intend to buy;
- Have a taxable income of up to or below $125,000 p.a. for singles, or $200,000 p.a. combined for couples (married or in a de-facto relationship);
- Have never previously owned a house either alone or in a joint title.
- Are seeking to live in the purchased property as an owner-occupier as your principal place of residence.
If you meet this and your lender’s additional criteria, and there is a place available under the scheme at the same time, your lender or broker will lodge an application through the NHFIC for you. Once your unconditional approval for a home loan and your application for the First Home Loan Deposit Scheme are successful, you must then purchase a home within 90 days of scheme approval that meets the price threshold specified by the NHFIC for that location. Lastly, you must move into the house within six months of settlement.
What you need to know and consider before applying for the First Home Loan Deposit Scheme
While you save costs in LMI, you can also use it with other benefits like the First Home Owners Grant. As a result, this makes entry into the property market easier for first home buyers. However, there are a few things you should keep in mind:
- The First Home Loan Deposit Scheme and the 15% deposit guarantee don’t cover other fees. These fees include the legal fees, bank fees or the stamp duty fee associated with homes valued over each state’s respective threshold. As such, applicants will still need to be able to pay for the various fees.
- Not all lenders are able to offer guarantees under the scheme. Hence, if you’re interested in applying, you should consider taking out a home loan with the participating lenders. Alternatively, you can contact a mortgage broker who works with one of these lenders.
- Due to a large number of expected applicants, 90% of those who apply for the scheme will miss out.
- For those with a lower deposit, what you save in LMI you may have to pay in interest over the life of your loan term in comparison to someone with a 20% house deposit.
- The property markets are experiencing or showing signs of high growth. Thus, waiting for a spot in the scheme may mean you enter the market at a time when prices are higher. Subsequently, this could mean savings in LMI, but higher costs in house prices.
- Once you move out of the property, your home loan will no longer be guaranteed by the scheme meaning certain terms and conditions need to be met and fees and charges may need to be paid.
Essentially, for those interested in applying for the scheme, there’s a number of things to consider. However, if entering the property market at the moment is your top priority and it’s only the deposit requirement that is holding you back, applying for the First Home Loan Deposit Scheme is a viable option. Overall, if you are able to enter the property market now through the Scheme all while saving on LMI, and seeing your money go towards mortgage repayments rather than rent, think about applying now, early in the financial year, when there are more spots available.
To find out more about the First Home Loan Deposit Scheme or discuss the options available to you, contact us or schedule a consultation.
Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstance and requirements.