First Home Guarantee
Welcome to your all-in-one guide to the First Home Guarantee Scheme in 2023 (which was formerly known as the First Home Loan Deposit Scheme).
In this straightforward guide, we'll cover:
-
How you can buy a house with just a
5% deposit
- How the upgraded scheme functions
- How to grab a spot in the First Home Guarantee Scheme immediately!
- And a lot more...
In this segment, I’ll walk you through the key basics of the Home Guarantee Scheme. If you’re a not familiar to this scheme, you’re going to find this part really handy! As we progress, we’ll dive into more advanced advice, tactics, methods, and real-world examples especially for those buying their first home.
But for now, let’s concentrate on the fundamental aspects of the Home Guarantee Scheme.
What exactly is the Home Guarantee Scheme?
The First Home Guarantee Scheme, formerly known as the First Home Loan Deposit Scheme, is like having the government as your backer. It allows you to purchase a house with only a 5% deposit, while also sidestepping the need to pay Lender’s Mortgage Insurance (LMI).
The scheme assists up to 35,000 home buyers per fiscal year to purchase a home with a smaller deposit. This program has been highly popular in the past, with spots filling up within just a few months after its launch.
The scheme does come with certain income and price limitations, which we’ll talk about further down.
What makes the Home Guarantee Scheme useful?
When you plan to buy a house, you’d typically need to save at least 20% of the property’s value to avoid paying lender’s mortgage insurance, or perhaps rely on your parents to be a guarantor.
However, with the Home Guarantee Scheme, you only need to contribute 5% of the property’s value as your deposit. The government (or NHFIC) will cover an additional 15% of the property value. **This allows you to borrow up to 95% of the property value without paying LMI!**
The Home Guarantee Scheme reduces your required deposit to just **5%**, making it easier and more cost-effective for you to enter the housing market, as it removes the need to pay lender’s mortgage insurance.
What’s good about it?
With the government serving as your backer, you appear less risky to the bank. This means you can escape paying tons of money in LMI and enjoy lower interest rates than usual.
With only a 5% down payment, you can dive into the real estate market. This is a better deal compared to the usual 8% deposit required when you pay LMI.
The money you pay weekly will chip away at your own home loan instead of just going to rent.
You can also stack up first-time home buyer perks like stamp duty cuts, the first home owners grant, and the first home super saving scheme with this new plan. You can save even more! To learn more about this, get in touch with your broker today.
What’s not so great about it?
If you’re buying with a smaller deposit, you’ll have to borrow more money and pay more interest compared to if you had a 20% deposit.
The Home Guarantee has a limit of **35,000** spots per year, given out on a first-come, first-served basis. You might lose your chance if you’re not fast or prepared enough before the July start date.
Some real estate pundits believe these new plans might push property prices even higher, shutting out potential home buyers who can’t access the plan.
There’s also a cap on the property price, which could limit your first home purchase options.
Requirement – Eligibility
Income – If you’re single, you can have up to $125,000 taxable income for FY23. For couples, the limit is $200,000 taxable income for FY23.
Deposit – You need to save at least 5% of the home’s cost but not more than 20%.
First Home Buyer – You shouldn’t have owned any property in Australia in the past 10 years.
Citizenship – Australian citizens and permanent residents can apply.
Minimum Age – Should be 18 years old or more.
Living Arrangement – You need to move into the property and live there as your primary residence within six months. If you move out, the scheme will no longer cover you.
Relationship – Groups of friends, siblings, and other family members can apply together.
New Updates to the FHBG for 2023 - 2024
As of July 1, 2023, there will be some changes to the FHBG to increase its availability:
- Now, not just individuals but also groups of friends, siblings, and other family members can benefit from it.
- If you’ve not owned a home in the past 10 years, you can apply, even if you’re not a first-time buyer.
- Borrowers who are single legal guardians of kids, like aunts, uncles, and grandparents, can go for the Family Home Guarantee.
- Thanks to these changes, owning a home could be a reality for more folks in Australia!
Remember, there’s a limit of 35,000 spots each year, so you better hurry!
Simple Guide to Getting a Home Guarantee
Planning to buy a house or relocate in 2023? Let’s discuss how you can get started with the Home Guarantee Scheme. Here, you’ll find various helpful tips and tactics I’ve learned from helping first-time homeowners. If you’re wondering whether you’re eligible or are looking to get a Home Guarantee spot before it’s gone, you’re in the right place!
- If you’re applying by yourself, your earnings should be less than $125,000.
- If you’re applying with someone else, your combined earnings should be less than $200,000.
- The loan should be for a home you’re going to live in and repay both principal and interest.
First off, you should contact a mortgage broker or a lender who offers this scheme.
Apart from the usual details, you should provide your mortgage broker:
- Your Medicare Card, and Position on the Card.
- Your ATO Notice of Assessment for the tax year 2022-2023.
- Standard home loan papers, like your salary slips and bank statements.
- Signed First Home Buyer Declaration for FY2023-24 (download here).
Lenders will look at your income, loan amount, and past home-buying experiences.
To be considered, you’ll need to meet certain requirements:
- The Loan to Value Ratio (LVR) is between 80% to 95%.
- The cost of the property shouldn’t be more than the set limit for the area.
- You are applying with one of the 32 approved lenders.
- If there are two applicants, both should be first-time home buyers.
- The loan is for a property to live in.
- A maximum of two people can apply for the loan.
- The property bought with the loan should be for living in.
- The loan should be paid back within 30 years.
Under the Home Guarantee Scheme, apart from the basic 5% deposit, there are additional expenses such as stamp duty, bank charges, and legal fees.
Let’s illustrate with an example. If you’re a first-time homebuyer in Queensland, for a property worth $600,000, you’ll need at least a $30,000 deposit (which is 5% of the cost). However, you’ll need more funds to take care of other costs, such as:
- Stamp Duty: $12,850
- Transfer Duty: $1,751
- Government Charges: $197
- Bank Charges: $700 (this could include setup fees and assessment fees that could range from nothing to $700)
- Conveyancing Fees: $2,000
- Building/Pest Fees: $500
- Lenders Mortgage Insurance: $0 (thanks to the Home Guarantee Scheme)
So, in addition to the initial $30,000, you will need an extra $18,098 to handle these fees, meaning your total deposit comes to $48,098.
Not sure if FHBG is the right scheme for you?
Let’s have a chat to find out what’s best for you!