Before we headed to the polls in May 2019 the Government proposed a new First Home Loan Deposit Scheme. Aiming to make it easier to purchase your first home by reducing the time it takes to save up a deposit.
It takes the average household around nine years to save a 20% deposit. With a 2 bedroom apartment in Melbourne suburbs starting from around $500,000, saving a 20% deposit of $100,000 can feel like an uphill battle. Many first home buyers have needed financial assistance (often from parents) to get the deposit together.
The aim of the First Home Loan Scheme, which has now been implemented and started on 1 January 2020, is to have first home buyers entering the market sooner by being able to purchase a property with as little as a 5% deposit.
How does the First Home Loan Deposit Scheme work?
In traditional circumstances, first home buyers would need to save a 20% deposit to buy a property. Some lenders will lend with lower deposits but you need to pay and additional cost of Lender’s Mortgage Insurance to cover the bank’s additional risk.
Now the First Home Loan Deposit Scheme sees the government-backed National Housing Finance and Investment Corporation (NHFIC) guarantee the difference between the lower deposit and the 20%. This means you do not have to pay Lender’s Mortgage Insurance, which can often be in excess of $20,000.
If you have more than a 5% deposit only the difference to make up the 20% deposit will be guaranteed. The guarantee is not a cash payment or a deposit for your first home. It is simply a legal arrangement between NHFIC and your lender to guarantee to pay up to a certain amount if you default on your loan.
You can’t apply to NHFIC directly for the guarantee. It all needs to be done via a lender. As a mortgage broker Melbourne we can manage the process for you.
Are you eligible?
There are a number of checks that need to be met in order for you to be eligible for the Scheme. Besides being over 18 years of age we’ve provided a brief summary below of the criteria but you can find full details on the National Housing Finance and Investment Corporation website.
Income test
The Scheme includes an income test for:
- singles – your taxable income for the previous financial year must not be more than $125,000
- couples – your combined taxable income for the previous income year must not be more than $200,000.
Prior ownership test
The property ownership test requires you to not have ever owned:
- a freehold interest in real property in Australia
- an interest in a lease of land in Australia with a term of 50 years (or more), or
- a company title interest in land in Australia.
Citizenship test
- You will need to be an Australian citizen at the time you enter into a home loan with your participating lender.
- If you are applying under the Scheme as part of a couple then you will both need to be Australian citizens.
- The Scheme is not open for permanent residents who are not Australian citizens.
Deposit requirement
The Scheme is to assist singles and couples (together) who have at least 5% of the value of an eligible property saved as a deposit. If you have 20% or more saved, then your home loan will not be covered by the Scheme.
Owner-occupier requirement
To meet this requirement, you will need to:
- move into the property within 6 months from the date of settlement or, if later, the date an occupancy certificate is issued, and
- continue to live in that property for so long as your home loan has a guarantee under the Scheme.
- If you don’t live in your property, your home loan will cease to be guaranteed by the Scheme. As a result, there may be terms and conditions of your home loan that require you to take actions – including that you may need to pay fees and charges and/or take out insurance.
Property requirement
For a property to be eligible for the scheme it must:
- be a ‘residential property’
- have a purchase price under the price cap for its location – this is $600,000 for Melbourne, $600,000 for regional centres (such as Geelong) and $375,000 for other parts of Victoria.
- be purchased by an eligible first home buyer under the scheme.
- at the settlement date for your home loan, you will be the sole registered owner/s of the property.
- be a property which is (1) an established dwelling, or (2) a new-build dwelling that is purchased under a house and land package, a land and separate contract to build a home or an ‘off-the-plan’ arrangement that is financed under an Eligible Loan from a participating lender
The catch? Places are limited
In each financial year up to 10,000 home loans can be guaranteed under the Scheme. The place limits may be released by NHFIC to participating lenders in allocations.
This could mean that places are not available at a particular time if the allocation has been exhausted.
A Melbourne mortgage broker like us can help to seek out a lender that has places available.
We can do the hard work with the lender for you
As well as ensuring we help you out with the process of taking advantage of the First Home Owners Scheme, as your broker we can also help to ensure all other paperwork is taken care of.
Book your free 15-minute discovery session today and let’s get you saving on your first home loan.
Related Link:
APRA Easing Home Loan Rules Is Good News For Melbourne Buyers
