First Home Loan Deposit Scheme

Home ownership is a personal and financial goal many of us aspire to achieve. But for many first-time homebuyers, that dream seems out of reach. The First Home Guarantee (formerly the First Home Loan Deposit Scheme) can help make the dream of home ownership a reality for first-time home buyers across Australia. This guide will explain everything you need to know about the First Home Guarantee, including how it works, who is eligible, and how to apply.

What is the First Home Guarantee - previously First Home Loan Deposit Scheme (FHLDS)?

The First Home Guarantee (or FHLDS) is a government program designed to help low and middle income Aussies enter the homebuying market sooner. It is administered by the National Housing Finance and Investment Corporation (NHFIC) under the Home Guarantee Scheme (Scheme) on behalf of the Australian Government. The Home Guarantee Scheme includes the First Home Guarantee (formerly the First Home Loan Deposit Scheme), the Family Home Guarantee and the new Regional Home Guarantee.

Through the First Home Guarantee, eligible first-time home buyers can purchase a home with as little as a 5% down payment. The First Home Guarantee is the new rendition of the First Home Loan Deposit Scheme.

What was the First Home Loan Deposit Scheme (FHLDS)?

The commonwealth government brought First Home Loan Deposit Scheme into effect in 2020 to financially support the first home buyers who want to buy either a newly built home or an existing one. The scheme was introduced to boost housing affordability and reduce financial stress on those who wish to purchase their first homes. The FHLDS was available to 10,000 borrowers. The First Home Guarantee has expanded to support up to 35,000 loans.

How does the First Home Guarantee work?

Under the First Home Guarantee, first time home buyers can purchase a home with a deposit as low as 5% and avoid paying expensive lenders mortgage insurance (LMI). Normally, the threshold to avoid  paying LMI is a downpayment of 20%. Under the First Home Guarantee, the government would act as guarantor for a portion of the loan, up to 15%. In other words, if an eligible borrower can supply at least 5% but less than the requisite 20% of the property value, the NHFIC will insure the difference, allowing the borrower to avoid LMI fees. This amounts to a savings of tens of thousands of dollars in insurance premiums. The  funds provided by the First Home Guarantee is not a direct cash payment but rather a guarantee to your lender on your behalf.

The First Home Guarantee will begin on 1 July, 2022, and run until the end of the financial year on 30 June, 2023.

What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance or LMI is a type of insurance that borrowers must pay when their deposit is less than 20% of the property they intend to purchase. LMI exists to protect the lender in case the borrower defaults on the loan. The cost of LMI will depend on the value of the property you are buying, the amount of money you intend to borrow, the lender, and the insurance company they work with. That said, LMI costs the average borrower $30,000-35,000, and can cost even more depending on where you live.

Who is eligible for the First Home Guarantee/FHLDS and what are the requirements?

Who is eligible for the FHLDS?

In order to be eligible to take advantage of the First Home Guarantee/FHLDS, interested borrowers must be Australian citizens at least 18 years of age. Permanent residents are not eligible.

Borrowers can be individuals or couples, and must be first-time home buyers. If you are seeking a loan as a couple, both you and your spouse must be first-time buyers who have never been sole or partial owners of residential property in Australia.

In order to apply as a couple, you must be married or in a “de facto” relationship. Siblings, friends, relatives, and other pairs of individuals may not apply jointly. If you are applying as a couple, both spouses must be Australian citizens.

Interested borrowers can use the Eligibility Tool to better understand if they are eligible for the First Home Guarantee.

Financial requirements

There are also financial requirements applicants must meet in order to qualify for assistance through the First Home Guarantee program.

First, borrowers must be able to provide at least a 5% deposit on the property they wish to buy. If borrowers have enough money in savings such that they are able to provide a 20% deposit or more, their loan will not be covered by the First Home Guarantee.

Next, there are income restrictions. Single applicants with a taxable income of up to $125,000 per annum for the previous financial year and couples with a taxable income of up to $200,000 per annum for the previous  financial year. For the financial year 2022-2023, income will be assessed based on the year 2021-2022.

What type of property can be bought?

There are specific requirements for eligible property in terms of property type and property cost.

First and most importantly, the property must be a residential property in which the borrower(s) intend to live. That means the property cannot be a commercial space, an investment property, or a rental property.

Borrowers must intend to be the owner-occupiers of the property they plan to purchase, and move into the home within six months of purchase. You must remain in the home for the duration of the time the loan is guaranteed by the program. If the new owners vacate the property, the home will no longer be covered by the First Home Guarantee. You are free to sell your home, however, the home loan will no longer be guaranteed by the scheme once the home is sold.

The only exception to this rule is for members of the Australian Defence Force (ADF) who are required to relocate as part of their duties. However, this exemption will not apply if you and your spouse applied for the First Home Guarantee together, and your spouse is a non-ADF member who can remain in the home while you are relocated.

Eligible residential property types include:

●       an existing house, townhouse or apartment

●       a house and land package

●       land and a separate contract to build a home

●       an off-the-plan apartment or townhouse

While the former New Home Guarantee only applied to newly built homes, the First Home Guarantee for 2022-2023 includes both new builds and existing properties.

The property must be located within Australia.

Property value caps

The purpose of the First Home Guarantee is to assist with the purchase of a modest home. As such, property price caps apply. Price caps are adjusted for the area in which the property is located.

Here is a breakdown of the price caps for each location:

Interested borrowers can use the Property Price Cap Tool to find out if their property qualifies under the First Home Guarantee, or to check the property value threshold for your area..

How to Apply for the First Home Loan Deposit Scheme?

Interest first-time homebuyers can apply for the First Home Guarantee through a participating lender. Your lender will review your eligibility and determine whether you qualify. If you are eligible, your lender will check the online scheme portal for available spots. Once your lender reserves a spot for you in the scheme, you must get pre-approval on a home loan within 14 days or your spot will be released. You must then purchase an eligible property within 90 days of notice of approval. When your home loan becomes officially guaranteed by the scheme, you will receive a Guarantee Certificate.

Applications can only be made with a participating lender authorised by the NHFIC.

Other important considerations to make before applying for the First Home Guarantee

As a first-time home buyer, you may be unfamiliar with the homebuying process and the long-term financial and legal implications of your options. It is wise to consult with a financial advisor to ensure that you fully understand how a property purchase will fit into your long-term goals.

Be aware that your minimum deposit, interest rate, fees, and repayment terms will depend on your unique financial situation (credit score, borrowing power, etc) and your lender’s requirements.

Don’t forget that you will also need to account for stamp fees and other upfront costs associated with buying a home. You must prepare to save not only enough money for the deposit, but also the other costs and fees. The NHFIC does not waive stamp duty, but there may be local/state programs in your area that help relieve these costs for first time buyers.

It is important to think about how you will be able to make payments on your mortgage once the loan is secured. The First Home Guarantee can help you secure the loan with a lower deposit and without having to pay lenders mortgage insurance; it does not assist with mortgage payments. Consider that a smaller initial deposit means larger monthly payments. Some borrowers may be better off saving for a larger deposit and having lower monthly repayments. Everyone’s situation is different, so consider carefully what will be in your best interest.

What if you don’t qualify for the scheme?

If you don’t qualify for the First Home Guarantee or the Home Guarantee Scheme, that doesn’t mean you’re out of options. There are a number of government-sponsored schemes designed to help prospective borrowers realise the dream of home ownership. For example, the First Home Super Saver Scheme can help you build up your savings for a deposit on your first home. Alternatively, you may be eligible for a First Home Owner Grant.

These grants and programs can also be used in combination with the First Home Guarantee.

If you are eligible for the scheme but there are no remaining spots available, you may choose to be placed on a waitlist.

Final Thoughts

Preparing to buy your first home is exciting, but it can also be daunting. This is why it’s important to be aware of all of the grants, incentives, and assistance available that can help you reach that goal. For first-time homebuyers, the First Home Guarantee (part of the NHFIC Home Guarantee Scheme) can be a great way to bridge the gap that stands between you and your dream home.

The First Home Guarantee is not a grant or a loan, but a guarantee to your lender to help you secure a loan and bypass lenders mortgage insurance. It is combinable with other waivers, grants, and state-funded programs available to first time home buyers.

You may be eligible for more than one program under the Home Guarantee Scheme. To determine the best course of action for you and your family, consult with an authorised lender or financial adviser who can help you plan for your future.