First home buyers in Australia are in an enviable position at the moment, with a host of both state and federal government incentives available, making it far easier than it has been to get into a home of their own.
While there are a range of grants and exemptions available in the current environment, one of the most effective is the First Home Loan Deposit Scheme.
The First Home Loan Deposit Scheme is a federal government backed initiative, that allows first home buyers to buy a home without needing a large deposit. Generally speaking, most lenders like to see a homebuyer contribute a 20 per cent deposit, which equates to an LVR (loan to value ratio) of 80 per cent.
When the deposit drops below that 20 per cent threshold, the buyer is often asked to pay Lenders Mortgage Insurance or LMI. LMI is an insurance policy that effectively protects the lender if either the value of the property falls significantly, or if the borrower gets themselves into financial trouble.
While LMI is a one-off premium, the cost can be well above $10,000 which puts more pressure on the home buyer, who is also being asked to contribute a deposit.
As a result, the Federal Government introduced the First Home Loan Deposit Scheme, which allows a first home buyer to contribute as little as five per cent as a deposit and the Government will effectively act as the guarantor to the loan. In some ways, this is similar to a guarantor loan, which would commonly see a first home buyer’s parents acting as the guarantor.
The added benefit of the First Home Loan Deposit Scheme, is that it can be used in conjunction with the other incentives and grants that are available to first home buyers. That means a first home buyer will still be able to access the First Home Owners grant and stamp duty exemptions that most state governments provide.
The First Home Loan Deposit Scheme is also available to be used alongside some of the other federal and state government building grants such as HomeBuilder.
However, there is an important consideration when looking at the packages. To access the First Home Loan Deposit Scheme, you will still be required to contribute a five per cent deposit from genuine savings. That means things like the first home owners grant won’t count towards your deposit.
Accessing the First Home Loan Deposit Scheme
While the First Home Loan Deposit Scheme, will be able to get people into their first home faster, there are still a list of requirements that you must meet to access the program.
The first is that the property you’re intending on purchasing must be less than the various caps that have been set for each state and territory.
State or Territory Capital city and regional centres Rest of state
New South Wales $700,000 $450,000
Victoria $600,000 $375,000
Queensland $475,000 $400,000
Western Australia $400,000 $300,000
South Australia $400,000 $250,000
Tasmania $400,000 $300,000
Australian Capital Territory $500,000 –
Northern Territory $375,000 –
On top of these limitations, there are also requirements around how much you’re able to earn. Singles must be making less than $125,000 per year, while couples can only earn $200,000.
Each financial year the Commonwealth Government makes 10,000 grants available and 5,000 of these are allocated to both CBA and NAB, while the remaining 5,000 are spread amongst second and third-tier lenders.
It’s also important to note, that you will still have to meet the normal serviceability requirements to access the grant. That means you’ll have to have enough income to service any debt, based on your current earnings and expenses.
The best way to see if you’re able to access the First Home Loan Deposit Scheme, is by speaking with a mortgage broker who will be able to assess your current situation and what you’re looking to achieve.