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The First Home Loan Deposit Scheme helps first home buyers enter the property market sooner by providing home loans with a 5% deposit and no LMI to be paid.

Earlier this month new legislation was introduced by the government to get the First Home Loan Deposit Scheme off the ground, as promised in their election campaign.

What is the First Home Loan Deposit Scheme?

The First Home Loan Deposit Scheme starts on 1 January 2020 and will be managed by the newly established National Housing Finance and Investment Corporation (NHFIC) in partnership with a panel of lenders. Lenders and mortgage brokers will be expected to assess your eligibility as they guide you through the home loan process.

Are you eligible for the First Home Loan Deposit Scheme?

  • You are first home buyer.
  • You have saved a deposit of at least 5%.
    • The government would then guarantee the additional amount needed to reach the typical 20% deposit.
  • You are first in line.
    • The scheme is limited to 10,000 borrowers per year which is quite low considering that more than 8,000 first home buyers took out mortgages in March 2019 (according to the ABS).
  • You earn less than $125,000 a year if you’re single and less than $200,000 per year if you’re a couple.
  • The size of your home loan meets the scheme’s eligibility requirements.
    • The size of your home loan (how much you can borrow) will be determined by where you live and what is happening in the property market in your region (as well as other normal lending criteria such as serviceability, your assets and liabilities etc).

Are first home buyers getting a good deal?

At first glance it appears that first home buyers are getting a great deal. You will be able to get on the property ladder with as little as 5% deposit. You can do this now but with this scheme, you won’t have to pay Lender Mortgage Insurance (LMI). LMI is payable when you borrow more than 80% of a property’s value. This adds up to a significant saving for you.

For example, if you bought a property worth $550,000 at 5% deposit ($27,500) you would have to pay around $18,900 in LMI. On the other hand, LMI is generally added to your home loan so you get to pay it back over time which may make the scheme’s 5% deposit look less attractive than first thought.

Also, there is a risk when your deposit is only 5%. If you buy the property and prices fall, your mortgage could end up being bigger than the value of your property. This is called negative equity which means that your property will be much harder (or impossible) to sell or refinance.

If you are a first home buyer and you want more information about the First Home Loan Deposit Scheme or what your options are right now, feel free to contact us anytime. We’re here to help.