Guide to the First Home Loan Deposit Program – Forbes Advisor Australia
The First-Time Home Guarantee program is designed to help eligible buyers own their first home faster.
It does this by allowing a buyer to purchase a home with as low as 5% down payment without having to pay for mortgage insurance from lenders. It was introduced by the federal government in 2019 and it is administered by the National Housing Finance and Investment Corporation (NHFIC). As property prices plummet in our capitals, housing remains largely unaffordable for many young people.
It was previously called the First Home Loan Deposit Scheme (which many people still call it) but was renamed in the 2022 federal budget. The number of places available each fiscal year has also increased from 10,000 to 35,000. name incorporates all of the different schemes available to first-time home buyers, rather than having different names for what was essentially the same support scheme.
How it works?
The First Home Warranty Program allows eligible first-time home buyers to purchase a home at a certain price with just a 5% down payment. The National Housing Finance and Investment Corporation (NHFIC) guarantees up to 15% of the value of property financed by a participating lender. Usually, without a deposit of 20% of the value of the property, mortgage insurance must be purchased and this is a significant additional expense.
“The good thing about the First Home Guarantee is that eligible borrowers can use it in conjunction with other government programs, like the First Home Super Saver Scheme or state and territory First Home Owner Grants. and stamp duty concessions,” says Dr Diaswati Mardiasmo, National Research Manager at PRD Nationwide.
“That said, it’s important to note that collateral is not a cash payment or down payment for your home loan.”
A number of conditions must be met to benefit from the scheme.
The value of the residential property must not exceed the price caps that have been set by your state or local government. In New South Wales, where real estate is the most expensive, the cap is set at $900,000. In more affordable states like Tasmania, the maximum price is $450,000.
“Price caps serve as a cap — the maximum price you can expect,” Mardiasmo explains. “That doesn’t mean you have to go all out. If you are able to find a property that is inferior, it will serve well in terms of the amount of debt incurred.
Mardiasmo also notes that the caps represent the total value of the property. Buyers who buy a house and land package should be particularly careful of this, as they risk having their application rejected if the price of both exceeds the maximum limit.
“Sometimes buyers can be caught off guard with variations in building contracts if they buy land and then have a separate contract to build a house,” Mardiasmo says. “They might also be caught off guard if they buy a house and land package, where the total cost can vary, depending on your choice of inclusions.”
Buyers of these types of properties will have to sign a fixed price construction contract.
In addition to the First Home Guarantee, there is also a Regional Guarantee for the Acquisition of a First Home and a Family Home Guarantee for single parents with at least one dependent child. You can learn more about the price limits via this table.
There is also some flexibility in terms of the type of property purchased, but it is essential that the property in question is residential. In other words, the plaintiffs will become the owner-occupiers. Investment properties are excluded from the regime.
Eligible residential properties include:
- an existing house, townhouse or apartment
- a house and land complex
- land and a separate contract for the construction of a house
- an off-plan apartment or townhouse
Singles and couples can benefit from the scheme. Single applicants whose taxable income does not exceed $125,000 per year for the previous fiscal year are eligible, while a couple’s total income is $200,000 per year.
“It is essential to remember that couples are only eligible for the First Home Guarantee if they are married or in a common-law relationship,” says Mardiasmo. “Other people buying together, including siblings, a parent and child or friends, are not eligible.”
The program was expanded in the most recent budget to provide specific support for single parents. There are now 10,000 family home guarantees available to eligible single parents with at least one dependent child who have a down payment of just 2%.
Loans under the First Home Guarantee require scheduled repayments of loan principal and interest for the duration of the agreement.
There are limited exceptions for interest-only loans, which primarily relate to construction loans.
A single person is eligible if they earn $125,000 per year or less, as is a couple earning $200,000 combined. This should be shown on the tax notice issued by the Australian Taxation Office.
To be eligible for the program, the minimum deposit amount is 5% of the total price of the property. A single parent with children can have a 2% deposit. The maximum allowable deposit size is 20%.
How to register
Additional eligibility criteria include:
- Applicant must be an Australian citizen – permanent residents are not eligible
- At least 18 years old
The NHFIC has authorized a panel of 32 participating lenders to offer the program. The main bank lenders are Commonwealth Bank and NAB, while some of the other lenders include Auswide Bank, Australian Military Bank, Bank Australia, Police Bank, Regional Australia Bank and Indigenous Business Australia.
New home warranty
The program was temporarily extended during the COVID-induced recession of 2020 and 2021 to include new homes. It worked the same way, but, as the name suggests, it was restricted to new home buyers only. It has since been liquidated.
Things to consider before applying…
A mortgage is a long-term commitment. Are you able to make regular repayments for many years or are you considering changing your work habits?
Don’t accept the maximum size of your mortgage without thinking about the impact this level of debt might have on you. Mortgage stress is affecting increasing numbers of Australians due to rising interest rates. Almost a million Australians are now suffering from mortgage stress.
“The program allows people to take on higher levels of debt at a time when house price growth is quite inflated due to a lack of supply,” says Mardiasmo.
“One way to mitigate risk is to ask yourself: Should I be considering a property right now? Just because you can get a mortgage with as little as a 2-5% down payment doesn’t mean you should do it.
When does the surety scheme for the first home loan end?
The current plan period runs from July 1, 2022 until the last day of the fiscal year, June 30, 2023.
What deposit do I need?
What is the income test?
Is the new home warranty still available?