Let's get you started on the Home Guarantee Scheme, and if you're new to this, you're in for a treat. We'll go over the basics so you can build a solid foundation of knowledge. In upcoming chapters, we'll dive into more advanced topics, including tips, strategies, and real-life case studies for those of you who are buying your first home.
Now, let's dive into the basics.
The Home Guarantee Scheme explained?
As first-time home buyers, you might be interested in the First Home Guarantee Scheme (FHBG). This program, previously known as the First Home Loan Deposit Scheme (FHLDS), essentially provides the government as your guarantor, which means you could potentially buy a home with just a 5% deposit and avoid paying Lender's Mortgage Insurance (LMI).
Starting from July 1st, 2022, the scheme will support up to 35,000 home buyers per financial year, which is fantastic news for those looking to purchase a home with a lower deposit. However, it's essential to act quickly, as the scheme has been incredibly popular in previous years, and the spots have filled up within a matter of months.
It's important to note that the scheme has both income and price caps, which we'll explain in more detail below.
What Makes Home Guarantee Scheme Good?
Usually, when you're looking to buy a home, you need to save up at least 20% of the residential property's value to avoid paying lenders' mortgage insurance or asking your parents to act as a guarantor. You can get away with just 5% of the property's value as your deposit, with the government or NHFIC covering the remaining 15%. This means you can borrow up to 95% of the property's value without paying LMI!
According to ABC, as of March 2022, a 20% deposit for the current median dwelling value across Australia would be around $147,795. Assuming a household income savings rate of 15% annually, it would take approximately 11.4 years nationally to save up for a 20% deposit.
However, you can get into the market much quicker and at a much lower cost, since you'll only need to save up 5% of the property's value. This means you can avoid paying lenders' mortgage insurance and start enjoying the benefits of homeownership sooner.
Starting from July 2022, the newly expanded scheme will make 35,000 places available, up from 10,000 in previous financial years.
Rising Popularity of Home Guarantee Scheme among Buyers
It's no surprise that more and more home buyers are jumping at the chance to take advantage of the scheme to get into the market. With over 60,000 eligible first home buyers having already participated in the scheme, and a limited number of places (35,000 in 2022-2023), you might be wondering if this scheme is right for you. To learn more about the first home buyer schemes available in 2024
An overview of the Benefits
With the scheme, the government acts as your guarantor, making you appear less risky to the bank. This means you can avoid paying thousands of dollars in Lenders Mortgage Insurance (LMI) and access lower interest rates than you might be able to otherwise.
By putting in just a 5% deposit, you can get into the residential property market, which is significantly lower than the minimum 8% deposit when you're required to pay LMI. This means you can start putting your weekly repayments towards paying off your own home loan, rather than just renting.
What's more, you can stack other first home buyer benefits on top of the Home Guarantee Scheme. These include stamp duty concessions, the first home owners grant, and the first home super saving scheme, allowing you to save even more. To find out how you can take advantage of these benefits, talk to your broker today.
What is the downside of the scheme?
It's important to keep in mind that if you're buying with a lower deposit using the Home Guarantee Scheme, you will be borrowing a higher loan amount and paying more interest compared to if you had a 20% deposit. While the scheme has expanded from 10,000 to 35,000 spots per year, it still operates on a first-come, first-served basis. This means that if you're not quick enough or not prepared before the July commencement date, you may miss out on this opportunity.
Furthermore, some residential property commentators have raised concerns that these new schemes could drive up property prices, potentially locking out would-be home buyers who can't access the scheme. It's worth noting that the Home Guarantee Scheme comes with a property price cap, which may limit your potential first home purchase. Be sure to do your research and consider all the options available to you before making a decision.
Can You Get Home Guarantee? Check Eligibility Here!
Here are the eligibility requirements for the Home Guarantee scheme:
Income: If you are single, your taxable income must be below $125,000 for the 2021-2022 financial year. If you are a couple, your combined taxable income must be below $200,000 for the same period.
Deposit: You must have saved at least 5% of the property's value as your deposit, but you can save up to a maximum of 20% of the property's value.
First Home Buyer: This scheme is only available for those who have never owned property in Australia before.
Citizenship: You must be an Australian citizen to be eligible for the scheme.
Property Price Cap: There is a cap on the property's purchase price, which varies depending on the location. Check the current property price cap in your area.
Minimum Age: You must be at least 18 years old to apply for the scheme.
Living Arrangement: You must move into the property and make it your primary residence within 6 months of settlement. If you move out of the property, you will no longer be covered by the scheme.
Relationship: If you are buying the property as a couple, you must be either married or in a de-facto relationship. You cannot buy the property with a friend, sibling, or parent.
Banks: Only 27 lenders are approved to offer the scheme. These include major banks like Commonwealth Bank and NAB, as well as some non-major lenders such as Bendigo Bank, Bank Australia, and Teachers Mutual Bank.
That's correct! To be eligible, you must be a first home buyer who has never owned property in Australia, including a lease of land or company title, be at least 18 years old, an Australian citizen, and satisfy the income test.
Property Price Caps of the Home Guarantee
Next, I'll be sharing with you all the necessary information about the property requirements for price caps, including the BIG updates that will come into effect on July 1st, 2022. If you've been feeling a bit lost and overwhelmed by all the conflicting numbers out there, then you've come to the right place. This guide is designed to help you navigate through the maze of information and make sense of it all. So, let's get started!
What determines the higher price caps?
Different regions across the country have varying property price caps under the scheme. Some regional centres, like the Gold Coast, Geelong and Newcastle, with populations exceeding 250,000, have higher caps, allowing buyers to purchase properties at a higher price and still qualify for the scheme. This means that the maximum property price for these areas is higher than in other areas to account for the higher cost of dwellings in these larger regional centres.
How to Apply For the Home Guarantee
It’s now time to dive into how you can prepare and apply for the scheme! Whether you're planning to buy a home this year or in 2025, I'll share some advanced tips and strategies that I've learned over the years of assisting eligible first home buyers. This guide will help you determine if you're eligible and provide you with everything you need to secure a Home Guarantee Spot before they run out. So, let's get started!
Am I eligible for the First Home Loan Deposit Scheme?
For solo applicants, the maximum taxable income allowed is $125,000, while for couples applying together, their combined taxable income cannot exceed $200,000. To be eligible for the scheme, the property you purchase must be owner-occupied, and the loan must be set up for principle and interest repayments.
What do I need to provide to apply for the First Home Guarantee?
One of our Mortgage Brokers can help you to apply for the scheme, you'll need to speak with an eligible lender for the reservation process. In addition to regular information like:
- Payslips and bank statements
- Medicare Card and position on the card
- ATO Notice of Assessment for the taxable year ending 2021-2022; and
- A First Home Buyer Declaration for FY2022-23.
One of our mortgage brokers will be able to guide you through this process and help you prepare your application.
How will my Home Guarantee loan be assessed?
When it comes to buying a house, your income, loan amount and previous history will be assessed to determine your eligibility for a loan. To be eligible, you'll need to meet specific criteria such as having an LVR ratio between 80 to 95%, buying a property within the price cap for your area, applying with one of the 27 eligible lenders, and being a first home buyer. If you're applying as a couple, you must be either married or in a de facto relationship, and both of you must be eligible first home buyers. Additionally, the property must be owner-occupied and the loan term should not exceed 30 years.
If you're wondering about other government schemes that can help you with your deposit, you might want to consider the First Home Super Saver Scheme. You can use this scheme while you're applying for the scheme to boost your deposit.
What deposit do I need for the Home Guarantee Scheme?
In addition to saving up for a minimum deposit of 5%, which for a $600,000 property in Queensland would be $30,000, eligible first home buyers will need to have additional funds to cover other costs such as stamp duty, bank fees, and legal costs. These expenses can add up quickly, and in this case, would amount to around $18,098. This means that to purchase a $600,000 property in Queensland, a first home buyer would need a total deposit of at least $48,098 ($30,000 for the minimum 5% deposit + $18,098 for other expenses).
Stamp Duty: $12,850
Transfer Duty: $1751
Government Fees: $197
Bank fees: $700 (establishment fees, valuation fees which range from $0 to $700)
Conveyancing Fees: $2,000
Building/Pest Fees: $500
Lenders Mortgage Insurance (LMI): $0 waived under the scheme.
Can I save on LMI by using the Home Guarantee Scheme?
Let's say a home buyer is purchasing a property in Brisbane for $750,000 without access to the Home Guarantee Scheme. The lenders' mortgage insurance (LMI) they would need to pay varies depending on the deposit amount and loan to value ratio (LVR). Here is an example breakdown of LMI costs for different deposit amounts and LVRs:
- With a 5% deposit ($37,500), and an LVR of 95%, the LMI cost could be around $24,000
- With a 10% deposit ($75,000), and an LVR of 90%, the LMI cost could be around $13,500
- With a 15% deposit ($112,500), and an LVR of 85%, the LMI cost could be around $7,500
Keep in mind that these costs are approximate and will depend on the individual lender's LMI calculations.
Some Lenders who you can access the First Home Loan Deposit Scheme Through
Here is the list of 20 lenders participating in the First Home Loan Deposit Scheme:
- Commonwealth Bank (CBA)
- National Australia Bank (NAB)
- Australian Military Bank
- Auswide Bank
- Bank Australia
- Bendigo Bank
- Beyond Bank Australia
- Community First Credit Union
- Greater Southern Bank
- Defence Bank
- Gateway Bank
- Indigenous Business Australia
- Mortgageport
- MyState Bank
- People’s Choice Credit Union
- Police Bank
- P&N Bank
- Regional Australia Bank
- Teachers Mutual Bank Limited
- The Mutual Bank
Will the Home Guarantee Scheme end?
Good news for aspiring homeowners! The scheme is set to start on July 1, 2022 and offering 35,000 guarantees each year. This is a significant increase from the previous limit of 10,000, which used to run out within a few months. With more guarantees available, eligible first home buyers can take advantage of this scheme for a longer period.
Additionally, the government is working on two more schemes to support home buyers. The Regional First Home Buyer Support Scheme is launching in late 2022, which will help 10,000 home buyers in regional Australia to purchase a property. The Shared Equity Scheme is also in the works, which could reduce home buyers costs by 40% by allowing the government to share ownership with eligible buyers.
Do note that the scheme is available only if you earn less than $90,000 individually or less than $120,000 as a couple. The duration of the scheme is unclear, as it follows a first-come, first-served basis. If you're interested in participating, contact our Mortgage Brokers to secure your spot today.
Our FHLDS Wrap up
I hope you found this guide to the scheme useful in your journey towards home buyers securing their first home.
Now, I'd love to hear your thoughts. Which strategy do you think would work best for you? Will you go ahead with a 5% deposit or try to save up a little more to reduce your repayments?
If you need any assistance with applying for the Home Guarantee Scheme or securing a home loan, don't hesitate to leave us a quick message. Our team of expert Mortgage Brokers will get back to you before close of business.
