What Is the First Home Guarantee?
The First Home Guarantee (previously known as the First Home Loan Deposit Scheme) allows first-home buyers with deposits as low as 5% to qualify for a home loan without paying Lenders Mortgage Insurance (LMI) fees.
It is one of the three schemes under the Home Guarantee Scheme. The other two are the Family Home Guarantee and Regional First Home Buyer Guarantee.
How Does It Work?
Essentially, the government will act as the mortgage insurer; for example, if a borrower provides a deposit worth 5% of the property value, the government guarantees 15% of the property value, making the risk to the lender the same as if the borrower provided a 20% deposit.
The scheme is aimed at helping low- and middle-income Australians buy their first home sooner by reducing the amount they need for a deposit and eliminating LMI costs, saving borrowers tens of thousands of dollars.
Typically, to avoid paying thousands in LMI fees, a borrower needs a 20% deposit. However, under the scheme, even with a 5% deposit, you avoid LMI fees since the government will guarantee up to 15% of the value of the property.
Moreover, eligible first home buyers will be able to use the scheme together with other government programs such as the First Home Super Saver Scheme, state and territory First Home Owners Grant and stamp duty concessions. We’ve compiled a list of other government schemes and grants available for first home buyers here.
Under the First Home Guarantee, participating lenders and mortgage brokers will assess a first-home buyer’s eligibility alongside other standard home loan considerations such as serviceability (borrowing power), credit checks etc.
Borrowers must apply through a participating lender. The NHFIC will not be accepting direct applications.
As accredited mortgage brokers, we can help you reserve your place, subject to availability. Due to the limited number of slots on offer each year, you should ensure your application is “first-in-best-dressed” for the best possible outcome. Apply as soon as possible.
It is for these reasons that we recommend that first home buyers get their applications pre-assessed by our award-winning mortgage brokers.
To apply and reserve a place for the First Home Guarantee, give us a call on 1300 889 743 or fill in our short online assessment form.
Helpful Tip:Most lenders usually require at least an 8% deposit for first-home buyers to be able to purchase. With the First Home Guarantee, a 5% deposit is sufficient, which helps you get into the property market sooner.
(Note: Additional savings might be required for stamp duty as it may be applicable depending on the price of the property and the state where you are buying.)
You will also get competitive interest rates equivalent to 80% LVR home loans, rather than interest rates for 90% or 95% LVR home loans. This means your borrowing capacity will be much better under the First Home Guarantee.
Rojina Shivabhakti
Mortgage Broker, Home Loan Experts
60,000 Places From 1 July 2022
Beginning in financial year 2022-23, the government will provide a total of 60,000 places each year under the various schemes:
- 35,000 total places a year under the First Home Guarantee; this is an increase from 10,000 places
- 5,000 additional places a year under the Family Home Guarantee, from 1 July 2022 to 30 June 2025
- 10,000 places under the Help to Buy Scheme, which will commence from July 2023.
- 10,000 places under a planned Regional First Home Buyer Support Scheme, which commenced in October 2022.
First Home Guarantee Eligibility Calculator 2022-2023
Am I Eligible For The First Home Guarantee?
There are several eligibility criteria first home buyers must meet to qualify for the First Home Guarantee:
- A minimum deposit of at least 5% is needed (most lenders require the deposit to have been accumulated through genuine savings).
- Only Australian citizens who are at least 18 years of age and hold a Medicare card are eligible. Permanent residents are not eligible.
- Single first-home buyers earning up to $125,000 a year or couples earning up to $200,000 a year are eligible. Income from the financial year preceding the year in which the loan is entered into will be assessed.
- Couples are eligible for the scheme only if they are married or in a de facto relationship. Other persons buying together, such as siblings, parent/child or friends, are not eligible.
- Loans under this scheme require scheduled repayments of the principal of the loan for the full period of the agreement. Interest-only repayments for a specific period are accepted only for loans relating to both the purchase of vacant land and the construction of a house on the land.
- Applicants must be first-home buyers who’ve not previously owned or had an interest in a residential property, either separately or jointly with someone else. This includes residential strata, company title properties, regardless of whether it was an investment or owner-occupied property and whether it was ever lived in.
- Applicants must intend to move into and live in the property as their principal place of residence (they must be owner-occupiers).
Apart from the 5% deposit required, first-home buyers must also provide evidence of funds to cover stamp duty, legal fees, bank fees etc., where the Loan-to-Value ratio is above 95% of the property value.
What Types Of Properties Can I Buy Under The First Home Guarantee?
Eligible first-home buyers can buy the following types of properties:
- An existing house, townhouse or apartment
- A house and land package
- A vacant land together with a separate contract to build a home
- An off-the-plan apartment or townhouse
Once you’ve been pre-approved for a home loan by one of the participating lenders, you’ll have 90 days to find and sign a contract of sale for an eligible property that you want to buy.
Finally, once you’ve signed a contract of sale, you’ll have an additional 30 days from the signing date to finalise the paperwork and checks for your home loan.
What Will I Need To Provide To Apply For The First Home Guarantee?
Initially, under the first home buyers scheme, you’ll need to submit the following information to your mortgage broker or to a participating lender.
- Your full name and date of birth;
- Your Medicare number (including your position on the card);
- Your Notice of Assessment (NOA) for your taxable income. For reservations made from 1 July 2022 to 30 June 2023, the NOA is for the 2021-22 financial year.
- Other standard home loan documents.
What Are The Price Caps For The First Home Guarantee?
The caps vary depending on the state or territory and whether you’re looking to buy in a city, large regional centre or other regional area.
| Region | FY 2022-23 |
|---|---|
| NSW – Sydney & regional centres (Newcastle, Lake Macquarie & Illawarra) |
$900,000 |
| NSW – rest of state | $750,000 |
| VIC – Melbourne & regional centre (Geelong) |
$800,000 |
| VIC – rest of state | $650,000 |
| QLD – Brisbane & regional centres (Gold Coast & Sunshine Coast) |
$700,000 |
| QLD – rest of state | $550,000 |
| WA – Perth | $600,000 |
| WA – rest of state | $450,000 |
| SA – Adelaide | $600,000 |
| SA – rest of state | $450,000 |
| TAS – Hobart | $600,000 |
| TAS – rest of state | $450,000 |
| ACT | $750,000 |
| Northern Territory | $600,000 |
| Jervis Bay Territory & NorfolkIsland | $550,000 |
| Christmas Island & Cocos (Keeling) Islands | $400,000 |
Source: NHFIC
What Are Areas Considered Regional Centres?
The capital city price caps will apply to large regional centres with a population over 250,000, namely:
- The Gold Coast;
- Newcastle and Lake Macquarie;
- The Sunshine Coast;
- Illawarra (Wollongong);
- and Geelong, recognising that dwellings in large regional centres tend to be significantly more expensive than other regional areas.
Who Are The First Home Guarantee Lenders?
There are 32 participating lenders who offer the First Home Guarantee. The lenders consist of major and non-major lenders. You can visit NHFIC’s website to get the full list of lenders.
How To Apply For The First Home Guarantee
You can directly apply with a participating lender or take the help of a mortgage broker to help you.
Note:The NHFIC will not be accepting direct applications.
As such, lenders or mortgage brokers will assess scheme eligibility alongside other standard home loan considerations such as serviceability, credit checks etc.
We’re now able to reserve a slot in the First Home Guarantee for our customers subject to availability for up to 14 calendar days (cannot be extended).
The application needs to be submitted within 14 days and assessed as conditionally eligible to progress to a certified guarantee.
Once the loan is pre-approved, you’ll have 90 days to return a signed and dated contract (an extension on the 90 days to find a property can be considered).
To apply and reserve a slot in the First Home Guarantee please give us a call on 1300 889 743 or fill in our free online assessment form today.
What if the first home buyers Scheme places are exhausted?
If first home buyers Scheme places have been exhausted, but you’re eligible, you can still submit a reservation request, and you’ll be added to the waitlist.
When and if a Scheme place becomes available, you will be advised.
Do I Only Need A 5% Deposit Under The Scheme?
Separate to the minimum required deposit of 5% under the Scheme, first home buyers must have funds to cover stamp duty, bank fees, legal fees and government transfer fees, where the loan to value ratio (LVR) is greater than 95%.
For example, a first home buyer in NSW will need a $25,000 (5%) deposit for a $500,000 purchase plus extra funds to complete the purchase.
Generally, for the example above, the extra funds required will be:
- Stamp duty – $0 (stamp duty is waived for first home buyers up to a certain threshold depending on the state)
- Titles Office – Mortgage: $143.50
- Titles Office – Transfer of Land: $143.50
- Loan fees (establishment fees, application fees or valuation fees) – $900 (These fees vary from $0 to $900)
- Legal/conveyancing costs – $1,500
- Lenders Mortgage Insurance (LMI) fees – $0 (waived under the first home buyer scheme).
So, your total funds to complete will be $25,000 plus $2,687 (approx.) as extra funds.
It would be best if you also accounted for sundry costs for inspections/reports such as building inspection costs, pest inspection etc.
Does My Deposit Have To Be Genuine Savings?
Both the major lenders require your deposit to be genuine savings, i.e. deposit that you’ve saved yourself over time.
So, yes, the deposit needs to be genuine savings to qualify for the First Home Guarantee in most cases.
However, there are some exceptions to this with some lenders, i.e. using paid rent or rental history as proof of genuine savings.
Moreover, since February 2020, 25 smaller participating lenders with flexible genuine savings policies have started accepting applications. Applying with the right lender is key to approval.
How Much Do I Save In LMI With The First Home Guarantee?
Your actual savings in LMI will be based on your deposit, the loan to value ratio (LVR) and your home loan amount.
Think of it this way; the lower your deposit is, the higher the risk is to the bank leading to higher LMI premiums.
| State/Territory | Loan Amount | Deposit Saved (%) | LVR | LMI |
|---|---|---|---|---|
| NSW (Capital City and Regional Centre) | $900,000 | 5% | 95% | $37,206 |
| NSW (Rest Of State) | $750,000 | 5% | 95% | $31,005 |
| NSW (Capital City and Regional Centre) | $900,000 | 10% | 90% | $20,152 |
| NSW (Rest Of State) | $750,000 | 10% | 90% | $16,794 |
As you can see from the example above, the LMI fees go down if you put in a larger deposit.
You can use our LMI calculator to work out exactly how much you’re saving.
What Are The Pros And Cons Of The First Home Guarantee?
Benefits Of The First Home Guarantee
- The government guarantee saves first home buyers with low deposits tens of thousands in LMI.
- First home buyers can buy their first home sooner and enter the property market due to the required deposit of only 5%.
- Your mortgage repayments will go towards paying off your home loan instead of on rent.
- Along with other first home benefits such as the first home owners grant (FHOG) and the stamp duty exemption/concessions, the deposit scheme may incentivise first home buyers at the fringes to finally buy their own home.
Disadvantages Of The First Home Guarantee
- Buyers with low deposits will pay extra in interest over the life of the loan term than buyers with a 20% house deposit.
- There is a risk of borrowers ending up in negative equity, which is where the outstanding balance on a mortgage is greater than the property value. Borrowers in the scheme are encouraged to borrow at a high LVR, since the government guarantee allows them to avoid the cost of LMI.
- Some economists have also argued that this new incentive will further drive up demand for real estate, which will lock out first-home buyers who don’t qualify for the scheme.
First Home Guarantee FAQs
We’ve listed some of the frequently asked questions (FAQs) here. However, if there’s something you’d like answered that is not listed on the page, please put your question in the comment section at the bottom of the page.
Interest Rate
Will I be charged higher interest rates under the First Home Guarantee?
No. Participating lenders will not charge a higher interest rate to eligible first-home buyers under this scheme, which means if you are successful, you will receive the same interest rates as equivalent mortgages outside of this scheme.
What happens if I can’t afford my repayments?
The guaranteed home loans under the scheme are subject to usual lending arrangements (standard terms and conditions) and relevant consumer laws.
If you’re not able to meet your repayments, please contact your participating lender/ bank as soon as possible. Do not wait until you’ve defaulted on your mortgage. Usually, there are some options if you get in touch early.
Can I get discounted interest rates under the First Home Guarantee
A mortgage broker can help you negotiate for a competitive rate on your home loan under the scheme via a pricing request.
Eligibility
Do we qualify if my spouse is on a partner visa?
Unfortunately, the First Home Guarantee is only available to Australian citizens.
When purchasing as a couple, both you and your spouse need to be Australian citizens. So, you would not be eligible for the Scheme.
Can I use the it to build my own home?
No, you cannot. Owner-builder contracts are not eligible.
Can I purchase the property as a trust or a company?
The First Home Guarantee is available only to borrowers who enter into a contract of sale as an individual under their own name.
As such, you can’t purchase a property as a trust or a company under the scheme.
Can I buy a commercial property?
The First Home Guarantee is available only to borrowers who enter into a contract of sale as an individual under their own name. As such, you can’t purchase a property as a trust or a company under the scheme.
Do all participating lenders have the same criteria?
Yes, all participating lenders follow the same criteria for the scheme; however, each lender has its own lending criteria that borrowers must meet to qualify.
To be clear, you’ll require two pre-approvals; one for the scheme and one for the home loan.
How long does the First Home Guarantee remain in place?
The guarantee will last until:
- You sell your place; or
- You move out; or
- You refinance your home loan; or
- Your principal loan to value ratio falls below 80% of the purchase price.
Ideally, you should only refinance when you have less than 80% owing on your home loan to avoid paying LMI fees.
Can I keep the guarantee if I switch banks?
You’ll only be able to keep the guarantee if you were to move your guaranteed loan between two participating lenders provided that in doing so, you’re not increasing the loan amount or term of the loan and that it remains an eligible loan as defined in the scheme rules.
Do I qualify for the scheme if I have a low credit score?
Eligible borrowers will have to pass the credit scoring and standard lending criteria of the participating lenders.
There are different participating lenders who take a common-sense approach.
Putting your application through the right participating lender is key to availing the mortgage deposit scheme with a poor credit score.
What is the definition of de facto partner? Do we need to show proof?
A de facto relationship is defined as:
- Not legally married to each other;
- Not related by family; and
- Have a relationship as a couple living together on a genuine domestic basis.
There’s no requirement to show proof of a de facto relationship outside of the First Home Buyer Statutory Declaration form that you need to sign.
Property Ownership
Do we still qualify if I’ve never owned property, but my spouse has?
No, both borrowers must never have had ever owned or had an interest* in a residential property anywhere in Australia either individually, together or with another person.
This includes any residential property including residential strata and company title properties regardless of whether it was an investment or owner-occupied property and whether you have ever lived in it or not.
*To meet these eligibility criteria, you must never have held an interest in a:
- Freehold interest in a property in Australia; or
- Long term lease (with a term of at least 50 years) over real property in Australian including a renewal or extension of such a lease; or
- Company title interest in land in Australia.
Can I sell my home and buy another one and keep the guarantee?
You can sell your home anytime that you want; however, your home loan will cease to be guaranteed under the scheme.
What if I need to move and rent out my property?
If and when you move out of your property, your home loan will no longer be covered by the guarantee under the scheme.
Besides, under the terms and conditions of your home loan, you may have to pay lenders mortgage insurance (LMI) fees (if LVR is greater than 80%) or you may need to pay certain fees and charges that would otherwise not be applicable.
What happens if I have to sell my property?
The guarantee will expire when you sell your property.
The purchase of a second property will mean that you’re no longer eligible for the scheme.
Application Process
How do I know my home loan is guaranteed?
When you apply for a First Home Guarantee-backed loan, your participating lender will inform you if you have successfully reserved a place. The place will be reserved for 14 days, during which time, you have to get pre-approved with your participating lender
I’ve already signed a contract to purchase a property, can I still apply?
It depends on the type of residential property you’re purchasing.
When purchasing an existing dwelling, the property must be purchased under a contract of sale that you sign on or after 1 January 2020.
For an off-the-plan purchase, you must have entered into the contract of sale before the settlement date of your home loan, and the settlement date for your home loan must occur within 90 days that your home loan becomes guaranteed under the scheme.
What if I miss out on the scheme, can I reapply?
You may be able to reapply for the first home loan scheme provided that you meet the scheme eligibility requirements, lender policies and the availability of guarantees.
The federal government may also review the property price thresholds in the future.
Do I get a cash payment under The First Home Guarantee?
No, the First Home Guarantee is not a cash payment; rather, it is simply a guarantee.
How do I know that my application has progressed to the next stage?
You will know your application has progressed to the next stage when:
- Your participating lender has informed you a place has been reserved for 14 days.
- You have been pre-approved (conditionally) for a home loan.
- You have read the scheme information guide and completed their First Home Buyer Declaration form (one for each borrower).
Can I change my loan terms once it’s guaranteed?
No, loans guaranteed under First Home Guarantee cannot change their loan term. If you wish to alter your loan terms, you’ll have to refinance the home loan.
Certain limited changes are available to the borrower during the guarantee period, however, such as splitting the loan or fixing the loan. Rate changes are available as long as the eligibility criteria are met, meaning as long as you’re not switching to an investment loan or an interest-only term.
Do lenders’ postcode restrictions still apply under the scheme?
Yes, lenders have their own postcode restrictions on the location of properties they’re willing to accept. Or they may limit the LVR in some areas to less than 80%, in which case, LMI is not applicable as such the property will not be eligible under the scheme.
Not all participating lenders have postcode restrictions. If your property location is unacceptable to a particular lender, some other participating lenders may accept your property under the scheme.
Which valuation (bank valuation or contract of sale) is used to determine the scheme eligibility?
The higher valuation will be used to determine eligibility.
If either the bank valuation or the contract of sale value is above the property threshold, the customer will not be eligible.
First-Home Buyer Success Story
Goal
A married couple was looking to purchase their first home under the federal government’s First Home Guarantee, now called the First Home Guarante
Situation
We got the couple pre-approved for a $700,000 purchase.
Background
However, they found a place that they loved, but the price was $710,000 (over the price threshold of the Scheme), so they were happy to go over the limit and pay LMI.
They signed a contract at $710,000, and we ordered the valuation for formal approval.
The valuation came back low at $690,000. Since the couple had enough funds to contribute towards the shortfall, they asked us to just proceed as they were willing to cover the difference.
Solution
Our mortgage broker spoke to the selling agent and sent him a copy of the report and asked to speak to the vendor.
Our broker argued that since the couple would have to contribute the last of their savings and would really struggle if they proceeded and requested that the price be brought down to $700,000 (within the limit of the FHLDS).
Soon after, we received a call from the real estate agent saying that the vendors have agreed to $700,000.
The couple were absolutely thrilled as they are now saving $25,000 approximately on LMI fees because they were back within the limit of the FHLDS, as well as saving $10,000 on the purchase price.
What Other Options Are Available?
- A guarantor home loan allows first home buyers to borrow up to 105% of the property value with no LMI.
- 100% waived, or no LMI home loans are available for doctors and selected medical professionals.
- 90% waived LMI home loans for selected industry professionals like accountants, lawyers, mining specialists, professional athletes and high net worth individuals.
- 85% home loan with no LMI and no guarantor for borrowers in a strong financial situation with a clear credit history.
- There are also various shared-equity schemes available that help you buy your first home without paying LMI.
Even if you don’t fit into any of these categories, there are some lenders that can lend 95% plus lenders mortgage insurance which means that you can still buy a home with a 5% deposit.
Speak with one of our specialist mortgage brokers by giving us a call us on 1300 889 743 or by filling in our easy online enquiry form to find out if you qualify for a low deposit home loan.
