What’s the First Home Loan Deposit scheme?

We answer some of the most frequently asked questions on the Government’s First Home Loan Deposit Scheme

What is the First Home Loan Deposit Scheme?

The First Home Loan Deposit Scheme is a new government initiative that will allow first home buyers (who qualify for the scheme) with a minimum 5% deposit to secure a home loan without paying Lenders Mortgage Insurance (provided that the loan meets minimum criteria).

Operated by the Australian government’s National Housing Finance and Investment Corporation (NHFIC) in partnership with various lenders, the First Home Loan Deposit Scheme will help eligible first home buyers purchase a home faster by allowing them to access a home loan with a minimum 5% deposit (provided that their loan is approved at the relevant time and meets minimum requirements).

Under the scheme, up to 10,000 eligible Australian first home buyers, who have saved a deposit of between 5% to 20%, may be able to secure a home loan without Lenders Mortgage Insurance.

Who is eligible for the First Home Loan Deposit Scheme?

First home buyers must meet the following key eligibility criteria (among other criteria) in order to qualify for the First Home Loan Deposit Scheme:

• Deposit: Have saved a minimum deposit of 5% of the property purchase price.
• Income: Single first home buyers can earn up to $125,000 per annum to be eligible. For couples, the maximum annual joint income threshold to be eligible for the scheme is $200,000 per annum.
• Prior Ownership: Must not have ever owned real property in Australia.
• Owner-occupier: Must move into the property within six months of settlement and continue to live in the property for so long as your home loan is guaranteed under the Scheme.
• Citizenship: Must be an Australian citizen.
• Age: Must be 18 years of age or over.

How many people will be able to take advantage of the First Home Loan Deposit Scheme – is there a limited number?

The scheme will open to the first 10,000 eligible first home buyers who apply – on a “first in, best dressed” basis.

How much could be saved through the First Home Loan Deposit Scheme?

Based on average house prices in the capital cities (Sydney, Melbourne, Brisbane, Adelaide and Perth), it is anticipated that first home buyers could potentially save thousands in Lenders Mortgage Insurance fees.

How does the First Home Loan Deposit Scheme work?

Generally, home buyers typically need to save 20% of a property’s value in order to secure a home loan and avoid paying Lenders Mortgage Insurance. However, under the First Home Loan Deposit Scheme, for first home buyers who have saved a deposit of 5% of a property’s value and qualify for the scheme and whose loan is approved for the scheme, the government may guarantee the remaining 15% of the deposit, enabling purchasers to avoid the cost of LMI.

What is LMI?

Lenders Mortgage Insurance (LMI) is a one-off non-refundable premium that is added to a borrower’s home loan. LMI protects lenders in the event the borrower is unable to repay their mortgage.

LMI may be required if a home loan deposit is less than 20% of a property’s 'lender-assessed value'. This is a value based on the lender’s valuation of the property being purchased.

Different lenders have different rules about when LMI is required. The amount of LMI is generally calculated based on the size of the borrower’s deposit and the amount of the home loan. The First Home Loan Deposit Scheme will remove the cost of LMI so first home buyers will save money and time – ie. the time it takes to save a 5% deposit could be quicker than what it takes to save a 20% deposit.

What will waiving LMI mean for me?

Instead of insuring a home loan with LMI, for those eligible buyers with loans that qualify for the scheme, the Government may guarantee any shortfall in the purchaser’s deposit, acting as the mortgage insurer for the home loan.

How much could the First Home Loan Deposit Scheme saving me in LMI?

LMI will generally be based on the deposit size, the loan to value ratio (LVR) and the home loan amount. For example, the lower a deposit is, the higher the risk is to the bank, which leads to higher LMI premiums. Lendlease recommends that you contact your mortgage broker or bank to discuss your situation and get more information.

How will the First Home Loan Deposit Scheme be implemented?

To implement the scheme, the NHFIC will contract a panel of lenders instead of dealing directly with borrowers. Please refer to the First Home Loan Deposit Scheme website

Lenders or mortgage brokers will assess scheme eligibility alongside other standard home loan considerations such as serviceability.

Can the scheme be used with other government grants?

Yes. The First Home Loan Deposit Scheme can be used in conjunction with the First Home Owners Grant and stamp duty concessions, as well as the First Home Super Saver Scheme. See your specific state’s offers for more information.

VIC - First home owner grant

NSW – First home owner grants and schemes

WA - First home owner grant and Stamp Duty Concession

QLD – First home owner grant and home concessions

SA - First home owner grant

How long will the government guarantee last?

Once the borrower and their home are approved for the scheme, the government guarantee should continue to apply until the outstanding home loan balance falls below 80 per cent of the property purchase price.

What is the maximum property price I can purchase under the scheme?

The value of homes that can be purchased under the scheme will be determined on a state by state basis. Refer to the NHFIC website for details.

For more information

Visit the official website for further information.

Disclaimer:

Lendlease recommends interested parties seek their own financial advice. Concessions, rebates, exemptions and grants are offered by the respective state and federal governments and are subject to terms, conditions and eligibility criteria. Interested parties are required to make their own investigations as to eligibility for concessions, rebates, exemptions and grants. While Lendlease has endeavoured to ensure that the information in this article is correct as at January 2020, it is subject to change and no warranty, express or implied, is given as to its accuracy. Lendlease disclaims any liability for any loss, damage or claim of whatever nature or kind (including negligence) suffered, sustained or incurred by any party which arises out of any alleged reliance on this article.