As of 1 January, 2020, an initiative has been introduced by the Federal Government to assist eligible first home buyers to purchase their first home. The new government scheme allows approved applicants to take out a mortgage with just a 5% deposit and avoid paying lenders mortgage insurance.
- Administering Body: National Housing Finance and Investment Corporation (NHFIC)
- Eligibility: Singles earning less than $125,000, couples less than $200,000
- Minimum Deposit Required: 5%
- Property Price Cap: Dependent on region (see below)
What is the First Home Loan Deposit Scheme?
The scheme is designed to assist eligible first home buyers in obtaining a loan to purchase their first home. The scheme allows first time buyers to pay a deposit as little as 5% and allowing buyers to avoid Lenders Mortgage Insurance (LMI). In order to be exempt from LMI, most banks and lenders require a minimum deposit of 20% of the property’s value. Under the scheme, first home buyers who can’t reach this threshold can take out a loan if they have saved at least 5% of the value of the property they are buying. The government will then underwrite the loan so that borrowers do not have to pay LMI.
How does it work?
You will need to apply to the administering body (NHFIC) and demonstrate your eligibility. If approved, you can then take out a home loan and the government will act as your guarantor. Your lender will still carry out the normal checks in respect to your financial situation, but the scheme will reduce the onus of saving a 20% deposit.
Under normal circumstances, if a lender decides to approve a loan with a deposit of less than 20%, the borrower will be required to pay lender’s mortgage insurance (LMI). This insurance covers the risk to the lender should the borrower being unable to repay the loan. Under the new scheme, as the government is serving as “guarantor” on the loan, there is no need for the lender to take out LMI.
Am I eligible for the new First Home Owner Scheme?
The scheme is open to first home buyers who are earning up to $125,000 per year, as well as couples with combined earnings of up to $200,000. To be eligible, first home buyers must show that they have saved at least 5% of the value of the property they are purchasing. However, the number of first homebuyers that can apply has been capped at 10,000 per year. Not all properties will be eligible to be purchased under the government’s home deposit scheme. Price caps will be determined in accordance with the property’s local market. You will need to check what the property price cap is in your area.
Important Disclaimer: The content of this publication is general in nature and for reference purposes only. It is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.