The federal government first home buyer Home Guarantee Scheme is designed to help eligible applicants purchase their first home.
According to the National Housing Finance and Investment Corporation, since launch, the Scheme has assisted more than 61,000 people purchase or build their first home.
The intent of the Scheme is to help Australians with less than a 20% deposit, access home finance without the need for expensive Mortgage Insurance.
First home buyer Home Guarantee Scheme - key elements
Key elements of the first home buyer first home buyer Home Guarantee Scheme include:
- Applicants need to contribute a 5% deposit plus cover costs associated with the purchase (stamp duty, conveyancing, legal, etc.)
- The government then provides a guarantee to participating Lenders’ up to 15% of the purchase price bringing the total deposit to 20% and thereby avoiding the need for Mortgage Insurance
Because Mortgage Insurance costs between 3% and 4 % of the loan value – the government guarantee represents a significant cost saving for eligible applicants.
(Mortgage Insurance also only protects the Lender in the event of default, it is the borrower who remains liable for the debt
First home buyer Home Guarantee Scheme- qualifying criteria
To qualify for the first home buyer Home Guarantee Scheme you need to be:
- An Australian citizen and at least 18 years of age
- An individual, or couple (not a company)
- Earn less than $125,000 as an individual or $200,00 as a couple
In addition:
- You can’t have previously owned or had an interest in a property
- You intend to live in the property being purchased
First Home Buyer Home Guarantee Scheme - types of property
The Home Guarantee Scheme can only be used to purchase a residential property.
Types of properties included in the Scheme are:
- An existing house, apartment, or townhouse
- A house and land package
- Vacant residential land with a separate contract to build a home
- Townhouses or apartments purchased “off-the-plan”
The value of the property you can purchase
Depending on where you live there are property price caps which apply under the Scheme. For example:
- Melbourne and Regional Centres $900,000
- Other Victorian locations $650,000
Debt serviceability criteria still apply
While the government provides Lenders a guarantee of up to 15% of the purchase price, it is a guarantee, not a grant.
Applicants still need to show they can service and repay the full loan amount.
For example, if an applicant had a 5% deposit they would:
- Borrow 95% of the purchase price
- Need to demonstrate they can service and repay the loan, not only at today’s rate, but also in the event of future interest rate rises. (Lenders perform “sensitivity analysis” and add 3% to the actual interest rate)
(Important – As part of the assessment process, Lenders will compare your declared monthly expenses to both your bank and credit card statements for the last 3 to 6 months. So, it is important to review your statements when compiling your monthly budget, to avoid disappointment and frustrating delays).
Limited places
The first home buyer Loan Guarantee Scheme has proven very popular with first home buyers. However, places in the scheme are limited.
Currently the number of places in the Scheme is 35,000 each financial year.
Whilst this may seem a lot, we suspect the popularity of the Scheme is such that demand will outstrip supply.
How to apply
If you, or a family member, would like to learn more about the Scheme, don’t hesitate to get in touch.
We can help you:
- Understand how the scheme works and the qualifying criteria
- Gather all the needed information
- Get application ready and avoid common pitfalls
- Access the finance through our panel of participating Lenders (which includes some of the major Banks – not all Banks participate in the scheme)
Carlo Colagelo
Home Finance Broker
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