How Is the FHLDS Different from Traditional Home Loans?
One of the significant differences between the FHLDS and traditional home loans is the deposit size. Typically, lenders require a deposit of 20% of the property’s value to avoid paying LMI. For first-time buyers, this can be a substantial hurdle to overcome.
The FHLDS allows eligible buyers to purchase a property with a deposit as low as 5%, making it easier for them to enter the property market. The government guarantees the remaining 15% of the deposit, which means that buyers don’t have to pay for LMI.
Another significant difference is the number of loans available under the scheme. The FHLDS is limited to 10,000 loans per financial year, which means that not everyone who applies will be successful. Traditional home loans, on the other hand, are available all year round, and as long as you meet the lender’s criteria, you can apply for a loan.
What Are the Pros and Cons of the FHLDS?
Like any financial product, the FHLDS has its pros and cons. Let’s take a closer look at each.
Pros:
- Lower Deposit: The FHLDS allows first-time homebuyers to purchase a property with a lower deposit, making it easier for them to enter the property market.
- No LMI: Buyers under the scheme don’t have to pay for LMI, which can save them thousands of dollars.
- Government Guarantee: The government guarantees the remaining 15% of the deposit, which means that buyers don’t have to pay for LMI.
Cons:
- Limited Availability: The FHLDS is limited to 10,000 loans per financial year, which means that not everyone who applies will be successful.
- Income and Property Price Caps: To be eligible for the scheme, buyers need to meet certain income and property price caps set by the government.
- Higher Interest Rates: Some lenders may charge higher interest rates for loans under the FHLDS, which can result in higher repayments over the life of the loan.
