The FHLDS

The First Home Loan Deposit Scheme, now known as the First Home Guarantee Scheme, was initially constructed to help eligible first home buyers get in to their own homes sooner.

However, this scheme can be challenging to grasp, especially considering most first-home buyers may not be experts in the property market or the homeowner grants that might be available to them. That is why we have compiled the ultimate guide to help you gather all the information about the first home loan deposit scheme.

Continue reading for the full scoop on the FHLDS!

What Is The First Home Loan Deposit Scheme?

The First Home Loan Deposit Scheme is the Australian Government initiative for eligible home buyers, allowing them to get a home loan for their first home much sooner. From July 2021 until the end of June 2022, 10,000 places will be available in the First Home Loan Deposit Scheme, and then from July 2023, this is expanded to 35,000 placess.

This initiative was initially started because most first home buyers had to pay lenders’ mortgage insurance if they could not afford a 20% deposit. Given the cost of property has continued to increase over the years, the FHLDS was a way of reducing the costs to buyers. So, under this scheme, the first home buyer’s home loan will be guaranteed by NHFIC to the lender.

The goal is to allow, for example, eligible single parents to buy their first home (not first investment property) with as little as a 5% deposit. The scheme allows Australian citizens to get approved for a maximum of 95% of the property value, per the lender’s assessment. Note that this is simply a guarantee for the home buyer, as it’s not considered a payment or a deposit. It is just reducing the cost by cancelling the need for lenders mortgage insurance.

The government of the Commonwealth issues guarantees for the difference between the home deposit and the 20% deposit required by most lenders, so the first home buyers don’t have to pay for the lenders’ mortgage insurance, thereby reducing costs to purchase.

For example, if the 20% deposit is $120,000, and you only have $70,000 – the government will guarantee the amount between 80-95% of the purchase price to ensure you don’t pay LMI. You still need to take and be approved for a loan for this amount, it simply reduces the reliance on lenders mortgage insurance.

Despite this scheme not being a cash payment, many eligible first-home buyers may also be approved for other Australian government schemes if eligible for the First Home Loan Deposit Scheme. Many first home buyers utilise the First Home Super Saver Scheme, First Home Owner Grant, Home Builder Grants, stamp duty concessions, and various other schemes that State and territory governments offer. Keep in mind that different eligibility criteria apply for each of these schemes.

First Home Loan Deposit Scheme – New Home Guarantee

The recession resulting from COVID led to the government looking to help Australian citizens more, so the First Home Loan Deposit Scheme was expanded during this period and worked similar to the FHLDS. The New Home Guarantee provided an additional 10,000 places in each of the past two financial years for buyers looking to purchase newly constructed builds, off the plan purchases, house and land packages.

It works the same as the original First Home Loan Deposit Scheme, but it has limitations – it cannot be an existing house; it must be a new home. So, the buyers can buy their new home or build it on vacant land exclusively, and they can use the home guarantee to get a home loan with a 5% deposit. The same rules apply – the eligible first home buyers under this scheme are not required to pay the lenders’ mortgage insurance.

In the financial years 2020 and 2021, there were 10,000 available to purchase newly constructed dwellings.

What Is A ‘First Home’ According To The Australian Government?

For the new homes to fill the eligibility criteria, they have to be:

• newly constructed dwellings such as a townhouse, apartment, or a freestanding house
• house and land together
• off-the-plan dwellings such as a townhouse, apartment, or a freestanding house
• vacant land with a separate contract for building a new house

To fill the eligibility criteria, the Australian citizens buying newly constructed dwellings must be eligible first home buyers. People with existing property do not fill the criteria to use the New Home Guarantee.

Can I Apply For The First Home Guarantee?

It’s pretty simple to apply for the First Home Loan Deposit Scheme – as the eligibility criteria include:

• being an Australian citizen over 18 years of age
• if you want to buy as a couple, the other person must be the spouse or registered partner (not a family member or friend)
• cannot have owned residential property in Australia;
• be under the salary cap;
• purchase under the property cap

Below, you will find the detailed guide for the other requirements, so read carefully with all the information about the homeowner grant.

1. Property Criteria

First Home Guarantee is more straightforward than the New Home Guarantee, as the first home buyers can purchase a new or existing home without voiding any of the requirements listed by the Australian government initiative.

To apply for the ‘New Home Guarantee’, the first home buyer will have to build a new house or purchase a new house or apartment without the ability to acquire an existing house.

Another thing regarding the property is the property price threshold or the limit on the residential property value the eligible first home buyer can buy. It all depends on the State and Territory governments, along with the property’s location – whether it’s metro or regional.

Regional centres, for example, are any centres with a population of over 250,000 people. Some of the regional centres in the scheme are the Sunshine Coast, the Gold Coast, Geelong, Newcastle, and Illawarra. Some of these regional centres have a different property price thresholds, so check if you can apply for the first homeowner grant. Buyers also need to ensure they purchase under the property cap for that area, so it’s important to be aware of what the limit is.

1. Buying Alone Or In A Couple

As mentioned, you can apply for the First Home Guarantee alone or with your spouse or partner. However, the couples must be married or in a de facto relationship. If you are in a different relationship, you will not fill the eligibility criteria – so you cannot apply with a friend or a family member for example.

2. Salary Cap

If you are buying alone, instead of as a couple, you will have to earn less than $125,000 in the last financial year to apply for the First Home Loan Deposit Scheme. For couples, the salary cap is set at $200,000 combined taxable income in the previous financial year. This is verified against your notice of assessment for the year.

3. Deposit Levels

The government initiative was to assist Australian citizens buying their first home, whom otherwise may have put off buying for a few years due to the cost of LMI, but you will have to have, at the very least, the 5% deposit. The minimum is set at 5% because, according to the government, this demonstrates some level of savings.

4. Principal and interest loan repayments

The home loan must be a principal & interest home loan during the time frame of the government guarantee. The only exception to this rule is if you are buying vacant land to build a new home over it. If that is the case, you can apply for an interest-only home loan during the construction of your new house.

The last thing to remember is that you will have to be an owner-occupier for the home loan guarantee. The purchased property must be owner-occupied, or the guarantee will not be viable. If you move out and it becomes an investment property, the guarantee is no longer in effect.

Other Eligibility Requirements

Besides Australian citizenship, you will have to consider plenty of little things before contacting the participating lenders. Before you read the following eligibility criteria, you will have to think whether climbing the property ladder using the First Home Loan Deposit Scheme is the right idea.

After that, you must check the participating lender home loan requirements. Despite the government guarantee, your home loan will go through the same credit application like any other home loan. So, if you cannot meet income, expenses, and credit history requirements for an approval, it may lead to issues in receiving an approval.

Think about your savings – and how high they are. The First Home Guarantee requires a demonstration of savings expressed as the 5% deposit or down payment.

After all, you will have to consider the upfront costs of buying a home – such as stamp duty and other expenses. Some state and territory governments offer significant discounts for stamp duty for eligible first home buyers, but you should understand what your stamp duty costs would be.

Lastly, consider other alternatives should the dream home not fit the FHLDS criteria. You might be better off saving for a large deposit or paying LMI.

2022 Federal Budget Update

In 2022, the government announced an expansion of the Home Guarantee program, with 50,000 places in three programs. The three programs are called the First Home Guarantee, Family Home Guarantee, and the Regional Home Guarantee. The Regional Home Guarantee is an entirely new program, and it’s designed to target specific regions and stimulate home buyers to purchase homes in those regions.

The First Home Guarantee has expanded to 35,000 guarantees annually from the 2022/2023 financial year. This is a significant expansion compared to last year when the government issued only 10,000 places.

The Family Home Guarantee offers 5,000 places now, compared to 2,500 places last year. This guarantee will last at least until 2025, allowing single parents to purchase a home with a 2% deposit, along with the upfront costs.

The Regional Home Guarantee is a new program that will include 10,000 places for eligible applicants who want to purchase their new home in regional Australia. The program requires a minimum deposit of 5% plus the upfront costs, such as stamp duty concessions.

This initiative is specific because it’s not reserved exclusively for first-home buyers. However, the applicants cannot own a house, and they must not have a place to their name in the last five years.

Final Thoughts

The First Home Loan Deposit Scheme can be a great way to reduce the need for the large deposits most properties require today. This might be the ideal program for you if you are looking for a house and cannot easily save a 20% deposit.

However, if you need help applying to this or any other program, such as the Family Home Guarantee, let us know so that we can walk you through options and any government programs that you would be eligible for.

Contact us today and get your home sooner than you think!

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