What is the First Home Loan Deposit Scheme?

Buying your first home is a big decision and a major milestone. Getting into the property market can seem scary and stressful, especially if your savings for a big deposit fall short.

But what if there was a less costly quicker path to property ownership? That’s exactly what the First Home Loan Deposit Scheme provides.

Discover what this plan entails, how it operates, who it helps, and other important information for anyone considering to apply.

If your mind is full of dreams of a snug apartment, roomy townhome, or a fresh house and land deal, the First Home Loan Deposit Scheme could make these dreams true. Continue reading for further details.

What is the first home loan deposit scheme?

The First Home Loan Deposit Scheme (FHLDS) is a government plan.

The goal? To help first-time homebuyers.
How? By allowing them to get their first home quickly with less money down.
When was this started? January 2020.
Who oversees this? The National Housing Finance and Investment Corporation (NHFIC).

The program enables first-time homeowners to purchase real estate with a minimal 5% down payment. Usually, for loans with under 20% deposit, lenders’ mortgage insurance (LMI) is required.

You can avoid paying LMI under this scheme. Simply put, LMI is a security measure for loan providers against borrowers’ inability to repay. This insurance can rack up thousands in costs, adding to the initial expenses of home acquisition.

How first home loan deposit works

The FHLDS operates by pledging assurance to the loan provider for 15% of the total loan worth, essentially working like a backer for the loan seeker.

It implies that the loan seeker can get the same interest rate and loan conditions as a person who has made a 20% deposit, however, without the hefty initial expense. The pledge is not a money deposit or a grant, and the loan seeker is still responsible for paying back the entire loan amount.

The program offers up to 10,000 spots each fiscal year and has specific rules to qualify. These rules include income limits, cap on property value, and demands for primary residence.

The scheme also supports different types of properties, such as existing houses, townhouses, apartments, house and land packages, land, and separate contracts to build a home and off-plan properties.

The FHLDS can be used with other government programs, such as the First Home Super Saver Scheme, HomeBuilder grant, or state and territory first homeowner grants and stamp duty concessions.

Data recently revealed by the ABS shows that in March 2023, first home buyer loans hit a total of $14.35 billion. Almost one-third, or 29.8%, of folks getting a loan for a home, were buying one for the first time. That’s more than the typical 25% we’ve seen over the last ten years.

Most first home buyers preferred houses (70%) to apartments (16%), and one in eight buyers searched interstate. There was also a 6% increase in recent first home buyers, where the main reference person for the household was aged under 35 (61%), compared to 2017–18 (55%).

What you need to know before you apply for the FHLDS

The First Home Loan Deposit Scheme (FHLDS) is an option for individuals looking to buy homes. It caters to those with an income and a positive credit history who may not have saved enough for a 20% deposit.

However, there are factors to consider before applying for this scheme. Initially, it is crucial to determine if you meet the eligibility criteria. These include:

Being a citizen who is at least 18 years old.
To be a home buyer, you shouldn’t own or hold any portion of residential property in Australia. This applies whether you own it alone or with others.
Earning a maximum of $125,000 for individual folks or $200,000 for partners in the last fiscal year comes into play. This covers everything you earn. For instance, your salary, bonus, sales commission, profits from shares, interest from savings, money from property rentals, etc.
You must live in the property as your home for at least six months. This must happen within a year of finishing the settlement or building the property.
Apply for a loan with an NHFIC-approved lender or their subsidiary. Currently, 27 lenders are actively participating. This group includes big banks, smaller regional banks, credit unions, and lenders not affiliated with banks. If you want to see the entire list of these lenders, you can visit the NHFIC website.
Elect a property that matches the price limit of the scheme. This limit fluctuates by property type and location. For instance, a Sydney home has a cap of $950,000, while a Hobart apartment maxes out at $400,000.
Buy a property that is eligible for the scheme. The property can be an existing house, townhouse, apartment, house, land package, land and separate contract to build a home, or off-the-plan property. However, the property must be a residential dwelling suitable for occupation. This means that the property cannot be a holiday home, an investment property, a vacant land without a contract to build, or a houseboat, caravan, or motor home.

Benefits and risks involved

The first home buyers’ scheme has numerous benefits and several drawbacks. In this section, we’ll focus on them.

Benefits:

It can help first home buyers purchase their home sooner with a lower deposit requirement.
It can save first-home buyers thousands of dollars by avoiding lender’s mortgage insurance (LMI) fees.
It can increase the affordability and accessibility of homeownership.
It can stimulate the housing market and the economy by supporting the construction and purchase of new homes.

Risks:

It can expose first-home buyers to higher debt levels and interest payments over the life of the loan.
It can increase the demand and prices of properties within the scheme’s price caps, making them less affordable for other buyers.

Takeaways

The First Home Loan Deposit Scheme is a government initiative that aims to help eligible first-home buyers purchase their first home sooner with a lower deposit and without paying the lender’s mortgage insurance.

The scheme has benefits and risks for the borrowers, the lenders, and the government. The scheme is not a substitute for saving a larger deposit or choosing a suitable property and loan. The scheme is one of the options that first-time home buyers can consider when planning to buy their first home.