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What Is A First Home Guarantee | Get A 5% Deposit Only For First Home Buyers
Universal Finance • September 30, 2024
As a first home buyer, there are many challenges you will need to work through before you receive the keys to your new home. However, many first home buyers may agree that the greatest hurdle is saving for a home loan deposit. Recognising this financial strain, the Australian government has released various schemes and initiatives to get first-time buyers into the property market.
The First Home Buyer Guarantee (FHBG) program is part of the Home Guarantee Scheme (HGS), which offers a valuable opportunity for first home buyers to enter the property market with as little as a 5% deposit.
This comprehensive guide will explore what the First Home Guarantee Scheme is, how it works, who is eligible and the steps you need to take to benefit from this initiative.
What is the First Home Guarantee Scheme?
The First Home Guarantee (formerly known as the First Home Loan Deposit Scheme) is an Australian government initiative designed to help first-time home buyers purchase a home sooner. Under this scheme, eligible first-time home buyers can purchase a property with a deposit as low as 5% without needing to pay for Lenders' Mortgage Insurance (LMI), a protection designed to safeguard the lender should the borrower default on their mortgage.
How the First Home Guarantee Scheme works
Under the first home buyers' guarantee, the government acts as a “guarantor” on the loan, covering up to 15% of the deposit, thus allowing lenders to offer loans to first home buyers with lower deposits. Here's a step-by-step breakdown of how it works:
- Government guarantee
— The government guarantees up to 15% of the loan, which means you only need to provide a 5% deposit. This guarantee is a win-win for borrowers and lenders, as the FHBG helps the borrowing process run more smoothly while reducing the lender's risk traditionally associated with applicants with a deposit below the 20% mark.
- Lenders Mortgage Insurance (LMI) — Normally, if you have a deposit of less than 20%, you would need to pay for LMI. This is because lenders tend to view applicants with smaller deposits as “risky” borrowers. The FHBG eliminates this cost, potentially saving you thousands of dollars.
- Loan application — You apply for a home loan through one of the scheme's participating lenders. The lender will assess your application and determine if you qualify for the FHBG
- Property purchase — Once approved, you can proceed with purchasing your home with a deposit of just 5%.
Qualifying for the First Home Buyer Guarantee Scheme — eligibility criteria
While the first home buyer guarantee sounds like a dream for many first-time buyers, there are a few eligibility requirements you must meet before you can apply. These requirements cover applicant details, property type and the loan you intend to use.
1. Your details
Aside from never having owned property before, applicants must:
- Be an Australian citizen or permanent resident.
- Have a taxable income of up to $125,000 per annum. For couples, the combined taxable income must be up to $200,000 annually.
2. Property type
While you are able to purchase a free-standing property or apartment, you must ensure:
- The property is an existing house, townhouse or apartment, a house and land package, a spot of land with a contract to build a home or an off-the-plan apartment or townhouse.
- The property must be intended for owner-occupancy, meaning you plan to live in the property as your primary place of residence.
- The property's value must not exceed the price cap in the state you intend to purchase in. For instance, in New South Wales, properties within the capital city and regional centre are capped at $900,000. To find out your state’s specific price caps, check out the Housing Australia Property Price Cap tool.
Keep in mind that since applicants must be owner-occupiers, investment properties are excluded from the FHBG.
Potential downsides of the First Home Buyer Guarantee Scheme
If you believe you are eligible for the FHBG and are considering applying, it’s important to do your research to ensure you know the potential setbacks you may encounter. This can include:
- Limited spots — The FHBG is capped at a certain number of places each financial year. Once the cap is reached, no further guarantees will be offered until the following year. At the time of writing, there are 35,000 places available for the 2024/2025 financial year.
- Property price caps — The scheme's property price caps may limit your choice of properties, particularly in high-demand areas.
- Qualification criteria — Not all first home buyers will meet the eligibility criteria, which can restrict access to the scheme. Ensure you double-check your eligibility before submitting your application. You can use the
Housing Australia Eligibility Tool to assess your qualification for the FHBG.
- Loan terms — Even if you qualify for the FHBG, you must still meet the lender's credit and loan criteria, which can include factors such as a healthy credit score and financial stability.
How a mortgage broker can help you prepare your application for the FHBG
There’s a lot to stay on top of when considering applying for the FHBG scheme. Commonly recognised for their invaluable assistance during the home loan application process, a mortgage broker’s expertise also extends to the FHBG, where they can provide:
- Expert advice —
Mortgage brokers have extensive knowledge of various government property schemes and initiatives, including the FHBG, and can help you determine if you are eligible or suggest alternative pathways.
- Access to lenders — Mortgage brokers have access to a wide range of lenders and can help you find a participating lender that suits your needs.
- Application assistance — They can guide you through the application process for your home loan and the FHBG, ensuring all documentation is correctly submitted and increasing your chances of approval.
Start your property journey with Universal Finance Corporation
Know you’re making the right decision during your search for the perfect property with Universal Finance Corporation. We’ve guided many first home buyers through the complexities of the First Home Buyers Guarantee Scheme, helping them achieve their long-term financial goals.
Find out if you’re eligible for the First Home Buyers Guarantee Scheme by booking a consultation with us today.
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