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We answer some of the most frequently asked questions on the government's first home loan deposit scheme.
1. What is the first home loan deposit scheme?
The First Home Loan Deposit Scheme is a new government initiative to support eligible first home buyers purchase a home sooner.
Under the Scheme, part of an eligible first home buyer’s loan (from a participating lender), will be guaranteed by the Australian Government’s National Housing Finance and Investment Corporation (NHFIC). This initiative was developed to enable first home buyers to secure a home loan with as little as 5 per cent deposit, without paying Lenders Mortgage Insurance (provided the loan meets minimum criteria).
2. Who is eligible for the First Home Loan Deposit Scheme?
First home buyers must meet the following key eligibility criteria (among other criteria) 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.
3. 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.
4. 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.
5. How does the First Home Loan Deposit Scheme work?
Generally, home buyers typically need to save 20% of a property’s value 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.
6. 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. See your specific state’s offers for more information.
7. 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 or to apply, click here.
Disclaimer: AVJennings 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 AVJennings has endeavoured to ensure that the information in this article is correct as at February 2020, it is subject to change and no warranty, express or implied, is given as to its accuracy. AVJennings 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.