The first Home Loan Deposit Scheme is a new initiative of the Australian Government to support eligible first home buyers to purchase a home sooner and will be introduced from the 1st of January 2020.
The First Home Loan Deposit Scheme
Start date: 1 January 2020
Singles earning less than $125,000
Couples earning less than $200,000
Minimum Deposit required: 5% of the property value
Property price cap: dependent on region
How does the scheme work?
Once applications are open, you can apply to the scheme’s administering body (NHFIC) and demonstrate your eligibility. If you are approved, you can then take out a home loan with a lender and the government will act as your guarantor. Your lender will still be required to perform their usual checks on your financial situation which may make it easier to obtain a loan without having saved for a 20% deposit.
Normally if you were to apply for a loan with a deposit of less than 20% you would be required to pay lenders mortgage insurance (LMI) unless you fit a specific criteria to have the LMI waived. LMI can be expensive, this can depend on the size of the deposit, the size of the loan, and the terms of the lender. If you are not eligible for the home loan scheme, have a read of the LMI waivers you can receive as a legal professional.
When you acquire your loan under the scheme you will receive support for the duration of the loan. Please take note that if you plan to refinance your loan in the future you will no longer be eligible for support. Also, if you decided to refinance and owe more than 80% of the property value you may be required to pay the LMI fee with your new lender.
The government’s 5% deposit scheme can also be used along with the First Home Super Saver Scheme. The First Home Super Saver Scheme allows home buyers to voluntarily withdraw their superannuation contributions to put towards a deposit on a property. The limit you can withdraw is $30,000 for singles and $60,000 for couples.
The risk in taking out a loan with a smaller deposit is that the amount owing is going to be larger. Due to this, your mortgage may last longer than it would otherwise. The standard maximum loan time is 30 years and your loan will not exceed beyond that. However, the minimum loan repayments will be larger with a higher interest rate which may put more pressure on borrowers making it difficult to pay back the home loan.
The scheme is open to individuals who are earning up to $125,000 per year and couples with combined earnings of up to $200,000. First home buyers must show that they have saved at least 5% of the value of the property they wish to purchase. However, the government will only support 10,000 home buyers per year.
Not all properties are eligible to be purchased under the scheme, you can view the property price thresholds below for each state.
The NHFIC will provide further details on the application procedure, eligibility assessment, and regional price caps closer to the scheme’s start date of 1 January 2020. If you have any further questions or would like to get in touch with a broker, please contact the team on (02) 9030 0420 or firstname.lastname@example.org .
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