Get Your First Home with Just a 5% Deposit.

Traditionally, first home buyers were urged to save a 20%deposit to buy their first home. That is because Lenders Mortgage Insurance is applied to loans that are deemed to be high risk, such as those borrowing more than 80% of the value of the home.

By saving a substantial deposit the home buyer avoids paying$10,000’s in Lenders Mortgage Insurance costs.

However, the steady property price rise has not made this easy. Many would-be first home buyers feel like their ability to save is being outpaced by a rising market.  

For example, as of September 2020, it would take an ordinary couple in their 30’s over 6.5 years to save a deposit (assuming they set aside20% of their after-tax income each month). That is a daunting prospect! And the picture becomes even bleaker for single young Australians who often cannot share the cost of living with someone else, having less available to put into savings.  

The irony is that these same young Australians could be saving more money if they lived in their own home. Record low-interest rates have made it cheaper to pay a mortgage than to rent in many suburbs. It is no wonder why so many young Australians feel like they are stuck between a rock and a hard place.

The First Home Loan Deposit Scheme (FHLDS)

In the past, first home buyers may have been urged to go to the ‘bank of mum and dad’ for cash towards a deposit or to act as a guarantor(to avoid paying Lenders Mortgage Insurance). While this option sounds good in theory, not all parents are in the position to help – leaving many young Australians at a disadvantage.

Fortunately, the Australian Government recognized this and has offered to act as the guarantor for up to 20,000 Australians in 2020 under the First Home Loan Deposit Scheme (FHLDS). Eligible first home buyers can now buy a home with as little as 5% in savings without having to pay Lenders Mortgage Insurance!

Who Is Eligible for the FHLDS?

The scheme is managed by The National Housing Finance and Investment Corporation, which requires that applicants meet the following eligibility criteria.

• Applicants must be genuine first home buyers. If either member of the couple has owned property in Australia before then they are ineligible.
• An income test applies based on the applicant’s taxable income for the previous financial year. Singles cannot have earned more than $125,000 and couples no more than $200,000 in combined income.
• Muse be a minimum of 18 years of age at the time of entering into the loan with the lender.
• Must be an Australian Citizen where both members of a couple applying must be Australian Citizens. Permanent residents who are not Australian Citizens are ineligible.
• Must have a minimum 5% deposit available and this must be made up of ‘genuine savings’ according to the lenders' criteria.
• Must occupy the property within 6 months from the date of settlement or certificate of occupancy being issued. The borrowers must continue to live in the property for as long as the home loan has a guarantee under the scheme.

What Types of Properties Are Eligible for the FHLDS?

To be eligible for the FHLDS the property must be ‘residential property' and cannot be an investment property.

While both existing and new homes may be purchased under the FHLDS, there is a limit to how many existing dwellings can be purchased. Out of the 20,000 FHLDS places available in the 2020-2021 financial year, 10,000 of these are exclusively available to buyers of new homes under the FHLDS: New Home Guarantee (NHG)

Under the FHLDS: NHG a ‘New Home’ is defined as;

• a newly constructed dwelling (e.g. whether a freestanding house, townhouse, or apartment)
• off-the-plan dwellings (e.g. whether a freestanding house, townhouse, or apartment)
• house and land packages
• and and a separate contract to build a new home.

For a property to be eligible under either FHLDS allocation, it must fall within the property price cap. This price cap differs by state and property status.

How to Apply for the FHLDS?

Places for the FHLDS are strictly limited, and with a lot of interest, there is a chance that some late applicants may miss out.

New places open at the start of the financial year, meaning those who apply in the early half of the financial year are more likely to secure a loan through the FHLDS.

The NHFIC does not accept applications directly. Applicants need to apply with a participating NHLDS lender or an authorized representative (mortgage broker such as Finance 360°).

Once registered for the scheme with a lender the registrant is placed on the waitlist while the registration is reviewed. It is important to note that due to high demand, this review process can take several months. Once your eligibility for the FHLDS is approved, registrants can proceed to apply for finance via the lender.