May 16, 2024 by Mortgage Choice Boronia
The First Home Guarantee Scheme is a fantastic scheme for first home buyers - allowing them to buy with as little as a 5% deposit, while also avoiding Lenders Mortgage Insurance. In this blog, we'll answer a few questions about the scheme, eligibility for the scheme and how to apply.
What is the First Home Guarantee and how does it work?
Previously known as the First Home Deposit Scheme, the First Home Guarantee is a federal government scheme helping a limited number of first home buyers purchase a property with as little as a 5% deposit without paying LMI.
The First Home Guarantee is a Government incentive that allows first home buyers to purchase their first home with a deposit as low as 5%, without the need to pay Lenders’ Mortgage Insurance (LMI).
What is Lenders Mortgage Insurance and why is it better to avoid?
LMI is a one-insurance payment that protects the lender in the event that you default on your home loan repayments. It is usually applicable when borrowing over 80% of the value of the property, however, with the First Home Guarantee, the Government will underwrite your home loan and act as a guarantor to ensure you don’t have to pay LMI.
LMI isn't necessarily a bad thing - in fact - if you have a small deposit and want to get into your next home quickly, it can be much more effective to simply pay the fee instead of saving for longer - especially as the property market gets more expensive. But of course, if you can avoid paying LMI and keep the funds in your pocket instead, it's well worth exploring!
What are the benefits of the scheme?
The main benefit of the First Home Guarantee to any eligible first home buyers is providing quicker access to the property market through the removal of barriers. As this scheme allows you to buy a house with a lower deposit, you can benefit by saving time by saving up a 20% deposit and have the opportunity to purchase your first home quicker.
As well as entering the property earlier, with the First Home Guarantee you can save thousands by not paying LMI at settlement. And, as an added bonus, as LMI is usually added to your loan amount, you’ll be saving even more money on the interest you would pay on LMI while it’s a part of your loan balance.
What is the eligibility for the First Home Guarantee?
- Income test: Singles with a taxable income less than $125,000, couples less than $200,000 for the previous financial year. Please note when applying for a place in this scheme, you will need to provide the relevant Notice of Assessment from the ATO for the previous financial year.
- Joint applications: Any two eligible people may apply together, including friends, siblings or other family members.
- Prior ownership: You must provide proof you have not owned or held interest in property in Australia in the past ten years. This includes commercial property, investment or company title properties.
- Citizenship: The scheme is available to eligible borrowers who are Australian Permanent Residents.
- Owner-occupied: You need to move into the property within six months of owning your home and continue to live in that property for so long as your home loan has a guarantee under the Scheme.
Property Price Caps FY2023-24
In order to be eligible for the scheme, there are purchase price caps that have to be adhered to. This means that you can't buy above the price cap if you want to be eligibel for the scheme.
|
State/Territory |
Capital city/regional centre |
Rest of state |
|
NSW |
$900,000 |
$750,000 |
|
VIC |
$800,000 |
$650,000 |
|
QLD |
$700,000 |
$550,000 |
|
WA |
$600,000 |
$450,000 |
|
SA |
$600,000 |
$450,000 |
|
TAS |
$600,000 |
$450,000 |
|
ACT |
$750,000 |
N/A |
|
NT |
$600,000 |
N/A |
|
Jervis Bay Territory & Norfolk Island |
$550,000 |
N/A |
|
Christmas Island & Cocos (Keeling) Island |
$400,000 |
N/A |
Source: Housing Australia Property Price Caps - For previous financial years' price caps visit NHFIC here.
Example of the First Home Guarantee works
If you’re looking to purchase and existing property in NSW valued at $600,000, however only have a 5% deposit of $30,000, you would likely need to pay LMI. However, if you successfully receive one of the 35,000 places available in the First Home Guarantee, the Government would essentially step in to provide a guarantee to cover your loan amount in the case of a default. In this example you would be saving thousands due to the First Home Guarantee, by avoiding the LMI payment.
How can I apply for the First Home Guarantee?
To apply for the First Home Guarantee, you will need to send your application directly with one of the Scheme’s participating lenders or through a mortgage broker - like our team! There are currently 27 participating lenders across Australia offering places under this scheme, a number of which are included in Mortgage Choice’s lender panel.
Get in contact with us to find out which lenders are involved in the scheme and if any of them are right for you.
Let's get started on your first home
Our Mortgage Choice Boronia team is here to help you get into your first home and make the most of existing Government schemes. The First Home Guarantee is just one of the great incentives available. We'll put together a tailored plan to get you into your first home sooner.
Find out more about our home loan service
**This information is for education purposes only and does not constitute personal advice. Get in touch with our team to find out what we would recommend for your own personal circumstances.**
