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First Home Loan Deposit Scheme: Everything You Need To Know

Jan 22, 2020 | Project Homes, Financing

What is the First Home Loan Deposit Scheme?

Home ownership is the Aussie dream, but getting onto the property ladder is hard for many. Thankfully, The Federal Government has created an initiative called The First Home Loan Deposit Scheme to help.

This scheme aims to help middle and low income earners enter the property market and secure their first home sooner and is done by eliminating the “LMI fees” (Lenders Mortgage Insurance) and lowering the amount you have to save up for a deposit to just 5%.

Mincove Cove Home Entry Foyer

In the past, if you wanted to borrow money to purchase a home, you needed to have a 20% deposit in order to avoid paying LMI fees, which do vary, but as a rough estimate might otherwise amount to around $35,000 on an $800,000 home!

The First Home Loan Deposit Scheme now allows for first home buyers to purchase a home with a deposit of 5-19% and avoid paying LMI fees as the government will guarantee the difference (up to 15%).

If you do have 20% or more of your borrowing amount saved, then you will not be eligible for the First Home Loan Deposit Scheme because you wouldn’t be subject to LMI fees which cut in when you have under 20% of your loan value as a deposit.

How many loans/schemes are available?

With 10,000 spots available this financial year, at time of publication, banks have registered 3,000 loans under the Frist Home Loan Deposit Scheme since January 1st, 2020.

The remaining 7,000 places will be open from the 1st of February, with another 10,000 to be available from the 1st of July.

Can the first home loan deposit scheme be used in conjunction with the first home buyers grant?

Yes! 2020 is an exciting time for first home buyers who are in the market to purchase. The First Home Loan Deposit Scheme can be used in conjunction with other government and state programs such as the First Home Owners Grant.

This means that first home buyers have a greater chance at buying a home and entering the property market sooner.

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Eligibility for the First Home Loan Deposit Scheme​

To get the First Home Loan Deposit Scheme, you’ll need to ensure that your personal circumstances, the property you want to purchase and your chosen home loan all meet the selection criteria. 

Before you apply, check that your circumstances meet all of the following requirements:

Personal circumstance checks

Income Test

Depending on when you apply for the scheme, you will need to provide relevant financial information for the past financial year. To do this you’ll need to provide a copy of your Notice Of Assessment from the ATO for the previous financial year to your lender and they’ll assess your income. 

Prior Property Ownership Test

As the Scheme has been put in place to assist genuine first home buyers, there is a property ownership test to ensure that you’ve never owned property in the past. 

The official website says that both you and your partner must not have owned:

  • A freehold interest in real property in Australia
  • An interest in a lease of land in Australia with a term of 50 years or more
  • A company title interest in land in Australia

The above list also applies to you if you’ve co-owned properties with somebody else,  regardless of whether it was commercial, an investment, owner occupied or remained vacant.

For your home loan to be approved you will need to make a statutory declaration to confirm you’ve never had any of these.

If you’re unsure about the interest you hold in a property, you should ask a professional advisor such as your lender to ensure that you don’t provide a false declaration. 

A Minimum Age Test

The Scheme is only available to persons 18 and over and your lender should ask for proof of age and ID during the application process for your home loan. 

A Citizen Test

The First Home Loan Deposit Scheme is only open to Australian Citizens.

If you are applying for the scheme as part of a couple then both of you will need to be an Australian citizen when you enter into a home loan with your chosen participating lender. 

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Deposit requirement

To get the First Home Loan Deposit scheme you will need to have a minimum of 5% of the total property value saved as a deposit. This is the same for both single and joint applications.

If you have more than 20% of the purchase price saved, you won’t be eligible for the scheme.

Owner Occupier requirement

As the scheme has been designed to help get more people into their first home,  investment properties won’t be covered. 

So you will need to move into the property within 6 months from the date of settlement and continue to live in the property for the duration of the guarantee under the scheme to qualify.

If you choose not to live in the property or move out before the agreed time, your home loan will cease to be guaranteed by the First Home Loan Deposit Scheme.

If this happens you will need to refer to your home loan terms and conditions. There may be fees and charges for you to pay or a requirement to take out new insurance. 

Conditions will vary from lender to lender so it’s best to speak with yours if you have any questions regarding the owner occupant requirement. 

Property eligibility for the First Home Loan Deposit Scheme

For a property to be eligible it must be a residential property with a purchase price under the price cap for its location. 

The property price caps ensure that people are not purchasing properties that exceed their needs and repayment capacity.

See a full list of the property price caps and areas here.

Home loan eligibility for the First Home Loan Deposit Scheme

For a home loan to be eligible to take benefit of the scheme it will need to:

  • Be with a participating lender. 
  • The borrowers (both singles and couples) will need to be eligible
  • The property is eligible and will be occupied by the borrower(s)
  • Be secured by a first ranking mortgage over the eligible property
  • Have a term of 30 years or less
  • Require regular repayments
  • The loan must be used 100% for the purchase or construction of the eligible property
  • Be entered into on or after the 1 January 2020

For more information regarding eligibility please visit the official website where you’ll also find a useful eligibility calculator: https://www.nhfic.gov.au/what-we-do/fhlds/eligibility/

How to apply for the First Home Loan Deposit Scheme​

The National Housing Finance and Investment Corporation (NHFIC) won’t accept applications directly from borrowers. To apply for the First Home Loan Deposit scheme, you’ll need to get in contact with one of the 27 participating lenders that have been contracted to implement the scheme.

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Your chosen provider will assess your eligibility for the First Home Loan Deposit scheme alongside your application for a home loan, standard checks such as serviceability and a credit check will also be applied.

If you’re a first home buyer or you’re advising a first home buyer, consult with your chosen participating lender and seek their independent financial and legal advice on how to best structure your loan arrangement in a way that suits you and your personal circumstances.

View a list of lenders and get more information here.

For More Information:

View Frequently Asked Questions here

View a Fact sheet here

Visit the official First Home Loan Deposit website here

DISCLAIMER: THIS ARTICLE PROVIDES GENERAL INFORMATION AND HAS BEEN PREPARED WITHOUT TAKING INTO ACCOUNT YOUR OBJECTIVES, FINANCIAL SITUATION OR NEEDS. WE RECOMMEND THAT YOU CONSIDER WHETHER IT IS APPROPRIATE FOR YOUR CIRCUMSTANCES. YOUR FULL FINANCIAL SITUATION WILL NEED TO BE REVIEWED PRIOR TO ACCEPTANCE OF ANY OFFER OR LOAN PRODUCT. IT DOES NOT CONSTITUTE LEGAL, TAX OR FINANCIAL ADVICE AND YOU SHOULD ALWAYS SEEK PROFESSIONAL ADVICE IN RELATION TO YOUR INDIVIDUAL CIRCUMSTANCES. ALL LOAN APPLICATIONS ARE SUBJECT TO LENDERS’ TERMS AND CONDITIONS, AND ELIGIBILITY CRITERIA. LENDER FEES AND CHARGES WILL APPLY.’

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