From 1 January 2020, the Australian Government’s First Home Loan Deposit Scheme will come into effect, to support eligible first home buyers in purchasing a home. This Scheme allows approved applicants to obtain a mortgage with only a 5% deposit (as opposed to the standard minimum deposit of 20% of the purchase price) and avoid having to pay lenders mortgage insurance, which is a huge incentive to get into the property market.
Like any scheme, there is an eligibility criteria that applies. The Scheme will support up to 10,000 loans each financial year and is open to singles earning less than $125,000 and couples with a combined income less than $200,000. The Scheme will be valid for owner-occupied loans with principal and interest repayments. It is important to note that 110,000 properties purchased last year were by first home buyers, so the Scheme will only be approved to a small percentage of this market.
There are also property price thresholds which apply for an existing house, townhouse or apartment, a house and land package, land together with a separate contract to build a home, or an off-the-plan apartment or townhouse. In the ACT, the threshold is $500,000 and in NSW’s capital city and large regional centres (population over 250,000) the threshold is $700,000 and the rest of the state is $450,000.
Applications for the Scheme will open on January 1 2020 through the National Housing Finance and Investment Corporation’s (NHFIC) website. National Australia Bank (NAB) is the only lending participant to offer guarantees under the scheme at this stage, with more lenders expected to participate in the scheme at a later date.
If you are approved by the Scheme, the government will act as your guarantor, meaning that the bank will not need to take out Lenders Mortgage Insurance (LMI) against your loan. You will still need to provide all documentation required to apply for a loan and the standard lending criteria eligibility metrics will need to be met.
If your loan is covered under the Scheme, you will receive support for the life of your loan. However, if you refinance to a new lender at any point and still owe more than 80% of the value of the property, you will more likely be up for LMI with your new lender. Similar rules apply for changing your product or repayment type, before doing so, it would be best practice to consult with the NHFIC to understand the potential implications.
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