The First Home Loan Deposit Scheme – Everything You Need to Know

The First Home Loan Deposit Scheme – Everything You Need to Know

Did you know that you could buy your first home with just a 5% deposit and pay no lenders mortgage insurance (LMI)?

Thousands of first home buyers have successfully secured their spot, bought their homes sooner and saved thousands from LMI exemption.

So here is the sign that you have been looking for! Check your eligibility criteria below and start your homeownership today.

What is the First home loan deposit scheme (FHLDS)?

How does the First Home Loan Deposit Scheme work?

It might seem overwhelming to save up to 20% of the home deposit. That is why The First Home Loan Deposit Scheme (FHLDS) allows first home buyers with deposits as low as 5% to get a home loan without paying Lenders Mortgage Insurance (LMI) fees.

Based on the maximum regional price cap under the scheme, first home buyers can save anywhere between $10,000 and $30,000 in LMI fees.

Moreover, the best part is that eligible first home buyers can use the scheme with other government programs. These can be the First Home Super Saver Scheme, First Home Owners Grant and Stamp Duty concessions.

eligible first home buyers

The New Home Guarantee Scheme Expansion (Updated 29th March 2022)

The New Home Guarantee Scheme is, in fact, the other name of the First Home Loan Deposit Scheme.

Under the Federal Budget Announcement made yesterday 29th March 2022, this scheme is expanded to assist more first home buyers to enter the property market.

50,000 places are now available across the three schemes for First Home Buyers, including

  • 35,000 places for First home buyers to buy new homes with a 5% deposit
  • 10,000 places for buyers to buy or build new homes in regional areas
  • 5,000 places for single parents to buy/built homes with a 2% deposit

Singles earning up to $125,000 and couples earning up to $200,000 will be eligible for all three scheme components.

The Family Home Guarantee scheme (single parents)

The new Family Home Guarantee allows eligible single parents with dependants to build or purchase a home with a deposit of just 2% without paying LMI.

Unlike the two schemes above, you don’t have to be a first home buyer to qualify for this scheme.

For example, if you are a single parent and found the perfect home for $550,000. But, you have been struggling to save enough for the standard 20% deposit of $110,000 required while paying rent.

Now, with the Family Home Guarantee, you could move into your dream home sooner, with just an $11,000 deposit (2%).

The Regional Home Guarantee Scheme

Freshly announced as part of the 2022-23 federal budget, this new scheme will help Aussies buy or build a new homes in regional areas. The government also hopes it will incentivise more migrants to settle in regional areas.

Under the Regional Home Guarantee Scheme, 10,000 home buyers will be able to buy or build a new home in regional areas with a deposit as low as 5%. Plus, the scheme will also spare them from having to pay lenders mortgage insurance (LMI).

Are eligible for the home loan deposit scheme?

#1 Your personal circumstances

First and most importantly, you should consider whether your individual situation meet all of the following criteria. They directly relate to your eligibility as a first-time home buyer eligible for the scheme.

There are several eligibility criteria that you need to meet:

Singles Vs Couples Application

The First Home Loan Deposit Scheme is available for both singles and couples.

Suppose you buy your first home on your own, and you want to apply for the first home loan deposit scheme. In this case, you need to check your eligibility criteria about your own circumstances.

On the other hand, if you are buying your first home with your spouse or de facto partner, where you are both named borrowers for the home loan, you can apply under the scheme as a couple. Still, you need to provide your lender with evidence confirming your relationship.

Noted that loan arrangements with your relatives, such as your parents or sibling, will not be eligible for the scheme.

the first home loan deposit scheme

An income test

To be eligible, your taxable income for the previous income year must not be more than $125,000 p.a. if you are a single first-home buyer.

For couples (married or in a de-facto relationship), your total income must not be more than $200,000 p.a.

Each income year starts on 1 July in a calendar year and ends on 30 June in the next calendar year. So, if you enter into a home loan agreement with your lender between this time, you would need to be able to provide your income tax assessment notice for the 2020-21 financial year.

A deposit requirement

The home loan deposit scheme assists singles and couples who have at least 5% of the value of an eligible property saved as a deposit. It is also a requirement of the scheme that you use the maximum amount of your savings towards your deposit.

If you have 20% or more saved, your home loan will not be covered by the scheme.

So, if you have less than the 5% minimum or more than the 20% maximum, you will not satisfy the deposit requirement for the scheme.

A citizenship test

This home loan deposit scheme is only open for Australian citizens, which means that you and your partner (if you apply as a couple) need to satisfy the citizenship test.

You will not satisfy the citizenship if at the Home Loan Date:

  • You are a permanent resident of Australia or a New Zealand citizen.
  • You are the Australian citizen’s spouse or de facto partner but are not yourself an Australian citizen.
  • You were previously an Australian citizen but have not reclaimed your citizenship.
  • You applied for or received notice of a positive decision on your application for Australian citizenship but have not received your citizenship certificate.

australia citizenship

A minimum age test

You need to be at least 18 years old or over to be eligible for the scheme. As part of a couple, you both need to satisfy the minimum age test.

A prior property ownership test

It’s important to understand that this scheme assists genuine first home buyers.

So, to be eligible for the scheme, you need to be a first-time homebuyer who has never owned:

  • Freehold interest in real property in Australia
  • An interest in a land lease in Australia with a term of 50 years (or more), or
  • A company title interest in land in Australia.

Again, if you are applying as part of a couple, both of you need to satisfy the above conditions.

An owner-occupier requirement

The home loan deposit scheme does not support investment properties. You must be an owner-occupiers who intend to move into and live in the property as the principal place of residence.

Under your Home Buyer Declaration, you will need to declare that you intend to:

  • Start living in the property you purchase within 6 months from either the date of purchase or the date an occupancy certificate is issued
  • Continue to live in that property for the duration of your home loan, which has a guarantee under the scheme.

You need to make sure that you have carefully checked all of the above documents. And be sure to speak to your lender and/or ask for professional advisers in case you’re unsure of any matter.

#2 The types of homes you are going to purchase

first home loan deposit for eligible first home buyers

You must be wondering what types of properties are considered under the home loan deposit scheme. Here’s the good news, most of the properties are included!

  • An existing house, townhouse or apartment
  • A house and land package
  • A vacant land together with a separate contract to build a home
  • An off-the-plan apartment or townhouse

If you are purchasing an ‘off-the-plan’ home:

  • You must have signed the contract of sale prior to the settlement date for your home loan
  • The settlement date for your home loan must occur within 90 days of your home loan becoming guaranteed under the scheme.

You must also move into the property within 6 months of your home loan’s settlement date.

#3 The property price threshold

There are thresholds on the property’s value, depending on which state or territory you are located. If your property is more than the price cap for its location, you will not qualify for the scheme.

#4 The lender for your home loan

Depending on which state or territory you live in, there are property value thresholds. If the value of your property exceeds the price cap for its location, you will not be eligible for the scheme.

A listing of these lenders is on the Scheme webpage at www.nhfic.gov.au.

Even if you are told that a specific institution is a Participating Lender, you should double-check that they are listed on the Scheme’s website.

If you are unsure whether any organisation or person is a Representative of a Participating Lender, you should contact the lender directly to ask.

pay lenders mortgage insurance

How to apply for the First Home Loan Deposit Scheme?

You can apply for the home loan deposit scheme directly or through a mortgage broker. Still, the lender must be a participant approved by the National Housing Finance and Investment Corporation (NHFIC). You can check the Participating Lenders List here.

The lenders or mortgage brokers will assess your eligibility alongside other standard home loan considerations such as your employment status, repayment ability, credit requirement etc.

The application must be submitted within 14 days and assessed as conditionally eligible to progress to a certified guarantee. Once the loan is pre-approved, you’ll have 90 days to return a signed and dated contract.

first home owner grant

Pros and cons of the Scheme?

For many people, purchasing their first home is a dream come true. It means no more putting up with renting, and it feels like you’re making progress in life while having your own place.

The first home loan deposit scheme has merit because the government acts as a guarantor on up to 15% of the property’s value, eliminating the need for LMI and resulting in significant savings.

However, you should also consider the pitfalls of the scheme, not least of which is buying a home with a mere 5% deposit. Below are some considerations to make.

The Pros:

  • Avoid lender’s mortgage insurance (which typically costs around 3-4% of the purchase price) and use this for the actual home deposit.
  • Get into the property market and own your first home sooner.
  • Your mortgage repayments will go towards paying off your home loan instead of on rent.
  • Act as an investment property as prices could rise after purchase.

The Cons:

  • A 5% deposit means that you will need to pay interest on 95% of the home’s value. So, you will need to pay more for a monthly repayment and more interest in the long run.
  • There is a risk of ending up in negative equity, where the outstanding balance on a mortgage is greater than the property value.
  • You might be charged a higher interest rate due to a small deposit. Other things to consider before applying for the FHLDS

Do you meet the lender’s credit requirements?

Lenders will typically assess your credit score when you apply for a loan. Your credit score determines how trustworthy you are as a borrower. It is generally measured on a scale of 0 to 1,200, or 0 to 1,000, depending on which credit bureau is calculating the score.

Generally speaking, the higher your score, the more desirable you are to lenders. In general, paying your bills on time and making regular progress in paying down debts will help improve your credit score. In contrast, bankruptcies, defaults, unpaid debts and multiple unsuccessful loan applications will lower it.

Can you meet repayment throughout the whole period?

A lower deposit usually means a larger mortgage. Also, keep in mind that you will not be able to switch to interest-only payments while you are covered by the scheme. If your circumstances change, you must continue to make the same payments. As a result, make a buffer for yourself. So be sure to prepare a buffer for yourself.

Do you have genuine savings?

If you can’t show that you’ve saved at least 5% of the home’s value or less than 20% of your home value, you may not be eligible for the scheme at all, though some lenders may still allow you to borrow.

Can you afford stamp duty and other upfront costs?

As a first home buyer, you might be eligible for stamp duty exemption and other discounts for the upfront costs. However, you still need sufficient funds to pay for these amounts.

What if you are not qualified?

Don’t worry if you don’t qualify! Other government schemes provide you with additional opportunities to enter the property market. You can, for example, have a family member act as a guarantor for a portion of your loan.

Want to know more?

Your first time buying a home is a significant life milestone. It is, by no doubt, a major purchase and could be one of the biggest you’ll make in your life.

With the help from the First Home Loan Deposit Scheme (FHLDS) and other government schemes, you can get to homeownership much sooner and save yourself thousands!

To help you get well prepared before stepping into the property market, Liviti is here to provide you with all information you need! Get in touch with us today at (02) 9056 4311 or click here for more guide.