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What is the First Home Loan Deposit Scheme?

The first home loan deposit scheme is an Australian Government initiative, from 1 January 2020, designed to assist eligible first home buyers purchase a home.  Saving for a deposit is often considered to be the biggest stumbling block to entering the housing market (try saving $ 70,000 or more while renting and trying to live day to day!) but with an initiative of this type, more first home buyers will get the opportunity to purchase sooner.

Who will this benefit & how?

  • First Home Buyers purchasing an established or constructing a new property (to live in) with a maximum value of    $400,000 that meet the income test.
  • Removal of Lenders Mortgage Insurance resulting in an approximate of 3% less contribution (deposit) required.
  • Giving access to First Home Buyers to enter the property market sooner.
  • First Home Buyers constructing their first home.

Who is eligible?

Australian singles and couples aged 18 and above who are buying their first home to live in – investors cannot apply. 

The scheme is income tested against what the applicant(s) earned (in the previous full financial year). This is capped at $125,000 for singles and $200,000 combined for couples.

This initiative is only open to genuine first home buyers (if you have ever owned property in Australia before, sorry but you cannot apply!).

Do you still need a deposit?

Yes, you will still need to be making a contribution towards the purchase so the Bank is not lending 100% of the purchase price. 

Previously with Lenders Mortgage Insurance applicable you would have been required to contribute a minimum of roughly 13.5% to cover completing the purchase price + all associated costs including stamp duty, but now this is the best part – utilising the FHLDS will see you only needing to  contribute a total of approximately 10.5% as you will not be charged lenders mortgage insurance (LMI).

5% of the properties purchase price will need to be demonstrated as ‘Genuine Savings’.  For example, out of the 10.5% required contribution, 5% needs to be genuinely saved & the remaining 5.5% could be a non-repayable gift from a relative.

Usually the only way to avoid LMI is to stump up a 20% deposit or have a parental guarantee.  This means on a $400,000 purchase price you will now be able to enter the market for around $12,000 less then when LMI is applicable (see examples below).

The Government is going to act as a guarantor for the remaining 15% deposit,  which means you can get into the market sooner while saving you thousands in LMI!

One last thing – the purchase price of the property in South Australia must not exceed $400,000.

How do I apply for the First Home Loan Deposit Scheme?

Not all Lenders are onboard with the Scheme so it is important you speak to a Mortgage Broker about the options available to you.

Examples on a $400,000 purchase value being the maximum value threshold:

Figures on a $400,000 purchase price borrowing 95% under the FHLDS:

  $400,000     Purchase Price

+$  22,820     Stamp duty & Conveyancing

=$422,820    Total Cost

– $380,000    Loan amount

=$  42,820     Minimum contribution required

Figures on a $400,000 purchase price borrowing 95% with LMI applicable (No FHLDS) 

  $400,000     Purchase Price

+$  22,820     Stamp duty & Conveyancing

+$  10,615     LMI (Lenders Mortgage Insurance)

=$433,435    Total Cost

– $378,615     Loan amount @ 95% inclusive of LMI premium

=$  54,820     Minimum contribution required 

Figures on a $ 400,000 House & Land package borrowing 95% under the FHLDS + FHOG***: 

  $200,000     Land Purchase Price

+$200,000      Total Build cost

+$  11,518     Stamp duty & Conveyancing (On Land only)

=$411,518    Total Cost

– $380,000    Loan amount

–  $  15,000     First Home Owners Grant

=$  16,518     Minimum contribution required   (20k required as genuine savings still to meet 5% of 400k rule) 

*** FHOG (First Home Owners Grant) only applicable to new build or properties never lived in

 Interested in getting some more information?   Feel free to contact me for a no obligation chat.