What Is the First Home Loan Deposit Scheme?
The First Home Loan Deposit Scheme allows first home buyers with deposits as low as 5% to get a home loan without paying Lenders Mortgage Insurance (LMI) fees.
Essentially, the government will act as the mortgage insurer guaranteeing home loans for eligible first home buyers with a minimum deposit of 5% of the property value.
Based on the maximum regional price cap under the Scheme, first home buyers can save anywhere between $10,000 and $30,000 in LMI fees.
Initially, 10,000 Scheme places were made available for eligible first home buyers on 1 January 2020, and a further 10,000 have been made available from 1 July 2020 for the 2020-2021 financial year.
First Home Loan Deposit Scheme Eligibility Calculator
FHLDS – New Home Guarantee: 10,000 new places
The federal government added 10,000 new places under what’s being called the FHLDS (New Homes) for first home buyers buying new or newly built homes. Unlike, the existing FHLDS which is available for both new and established property purchases, the FHLDS (New Homes) is only available if you’re buying a new or a newly built home.
In addition, the price threshold for new homes has also been increased throughout all the regions with Sydney and Melbourne seeing the biggest increase.
Before this announcement, most participating lenders were not accepting any further applications as all the places had already been snapped up by first home buyers in record time.
Similarly, we expect that these new scheme places will also be quickly snapped up within the next couple of months.
The two major particiapting lenders have started accepting new requests from eligible first home buyers purchasing new homes to join the FHLDS: New Home Guarantee waitlist. Don’t miss out, reserve your Scheme place today.
2,000 places reissued under the existing scheme
In the initial launch of FHLDS, 10,000 places were made available to help first home buyers to purchase or build a new home with a deposit of as little as 5%.
However, nearly 2,000 guarantees among them were not finalised. The Morrison Government will reissue unused guarantees from the 2019/20 financial year to assist first home buyers.
This represents an excellent opportunity for first home buyers to apply for reissued places.
First Home Loan Deposit Scheme re-release
Effective from 15 February 2021, few lenders will be accepting applications for the FHLDS re-release placements. All the eligible first home buyers can apply for one of these limited FHLDS places before 30 June 2021.
Note that the applications will only be accepted whereby the applicant has entered into a contract to purchase.
You will still need to meet the lender’s criteria as well as the following NHFIC requirements:
- Signed First Home Buyer Declaration
- Copies of 2020 ATO Notice of Assessment
- A copy of the fully executed contract of sale (once available)
- Copy of Medicare card
- Evidence of Australian citizenship (e.g. Passport, Birth Certificate, etc.)
Get your tax return done soon!
The FHLDS was amended so that borrowers need to provide their Notice Of Assessment from the ATO starting from 1 July 2020.
The problem with this is that most people don’t lodge their tax return right away. For most people, the deadline is 31 October 2020, and for people using an accountant or tax agent, the deadline varies but can be as later as 15 May 2021.
In other words, if you are quick to lodge your tax return, then you can get in before everyone else and secure one of the limited spots in the scheme.
When did the First Home Loan Deposit Scheme start?
The First Home Loan Deposit Scheme first began on 1 January 2020.
Under the FHLDS, participating lenders and their brokers will assess eligibility alongside other standard home loan considerations such as serviceability (borrowing power), credit checks etc.
The NHFIC will not be accepting direct applications.
Initially, the two major participating banks CBA and NAB started accepting applications under the Scheme from 1 January 2020 while the 25 smaller participating lenders started doing so only from 1 February 2020.
All 27 participating lenders have started accepting applications under the Scheme for the 2020-2021 financial year.
We’re now reserving Scheme places for our customers subject to availability.
Due to the limited number of slots on offer, you should ensure your application is “first-in-best-dressed” for the best possible outcome 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 in the First Home Loan Deposit Scheme, give us a call on 1300 889 743 or fill in our short online assessment form.
Who is eligible?
There are several eligibility criteria first home buyers must meet to qualify for the first home loan deposit scheme:
- 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 p.a. or couples earning up to $200,000 p.a. are eligible. Income from the financial year preceding the year in which the loan is entered into will be assessed.
- Couples are only eligible for the Scheme 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 (i.e. they must be owner-occupiers).
The value of homes that can be purchased under the Scheme has been set (price caps) on a regional basis reflecting the different property markets.
Initially, the 5% home deposit Scheme will only be available to 10,000 borrowers a year which is only around 10% of the total number of Australian who purchased their first home in 2018.
More importantly, 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 be bought under the Scheme?
Under the Scheme, 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 buyers Scheme?
Initially, under the first home buyers Scheme, you’ll need to submit the following information to your mortgage broker or to a participating bank for the Scheme Place Reservation process.
First home buyers will need to provide the following:
- Your full name and date of birth;
- Your Medicare number (including your position on the card);
- Your Notice of Assessment for your taxable income for the 2019-2020 financial year; and
- Other standard home loan documents.
Additional resources for the First Home Loan Deposit Scheme
Additional resources released by the NHFIC for the first home buyers Scheme:
- FHLDS Scheme Information Guide
- First Home Loan Deposit Scheme FACT SHEET – 2020-2021
- FHLDS Borrowers Eligibility – Singles
- FHLDS Borrowers Eligibility – Couples
- FHLDS First Home Buyer Declaration Form – FY 2020-2021
Why is this Scheme great news for first home buyers?
The first home loan scheme is aimed at helping low, and middle income Australian first home buyers purchase a property sooner and realise their dreams of homeownership by eliminating the LMI fees, saving borrowers tens of thousands of dollars.
Typically, to avoid paying thousands in LMI fees, a home loan borrower needs a 20% deposit. However, under the Scheme, even with a 5% deposit, you’d be able to avoid LMI fees since the government will guarantee the difference (up to 15%).
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.
What are the price caps for the first home loan Scheme?
The value of the residential property must not exceed the price cap for the area in which the property is located.
The price caps will vary between states and whether you’re looking to buy in a city, large regional centre or regional areas.
|State/Territory||Capital Cities and Regional Centres||Rest of State|
|New South Wales (NSW)||$700,000||$450,000|
|Western Australia (WA)||$400,000||$300,000|
|South Australia (SA)||$400,000||$250,000|
|Australian Capital Territory (ACT)||$500,000||Same price cap throughout the ACT|
|Northern Territory (NT)||$375,000||Same price cap throughout the NT|
For the Jervis Bay Territory and Norfolk Island, the property price cap is $450,000. And for the Christmas Island and Cocos (Keeling) Islands, the property price cap is $300,000.
What are areas considered large 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.
Price cap for new homes under the FHLDS New Home Guarantee
|State/Territory||Capital City/ Regional Centres||Rest of State|
What is a ‘new home’ under the FHLDS New Home Guarantee?
Eligible ‘new homes’ under the FHLDS New Home Guarantee (NHG) include:
- newly constructed dwellings (e.g. whether a freestanding house, townhouse or apartment)
- off-the-plan dwellings (e.g. whether a freestanding house, townhouse or apartment)
- house and land packages
- land and a separate contract to build a new home.
To be eligible, the borrower purchasing the newly built dwelling must be a first home buyer.
Why is there a property price threshold under the Scheme?
To ensure the Scheme meets the Australian government’s objective that the Scheme only be available for the purchase of a modest home, or the purchase of land and construction of a modest home, they have set different maximum property thresholds that apply in the capital cities, large regional areas and regional areas.
Please not that if you’re unable to meet the timeframes or requirements for eligible properties under the FHLDS, you may be able to apply to build or purchase a new home under the FHLDS (New Homes).
The full panel of 27 lenders contracted under the FHLDS Scheme
Interestingly, Westpac was going to be the second lender as part of the panel of lenders contracted by the NHFIC. However, in light of the recent money laundering allegations, they’ve been axed from the scheme.
Besides, to ensure that smaller lenders play a significant role in the Scheme, the government has revealed that the two major banks (including their subsidiaries) will not be permitted to facilitate more than 5,000 loan guarantees each financial year.
Moreover, not more than two major banks will be approved as eligible lenders for a financial year.
Along with CBA and NAB, the other 25 smaller lenders participating in the First Home Loan Deposit Scheme are:
- Australian Military Bank
- Auswide Bank
- Bank Australia
- Bank First (formerly known as Victoria Teachers Mutual Bank)
- Bank of us (Tasmanian customer-owned bank)
- Bendigo Bank
- Beyond Bank Australia
- Community First Credit Union
- Credit Union Australia (CUA)
- Defence Bank
- Gateway Bank
- G&C Mutual Bank
- Indigenous Business Australia
- MyState Bank
- People’s Choice Credit Union
- Police Bank (including the Border Bank and Bank of Heritage Isle)
- P&N Bank
- Queensland Country Credit Union
- Regional Australia Bank
- Sydney Mutual Bank and Endeavour Mutual Bank (divisions of Australian Mutual Bank Ltd)
- Teachers Mutual Bank Limited (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)
- The Mutual Bank
- WAW Credit Union
Additional lenders may be periodically added to the panel.
How to apply for the First Home Loan Deposit Scheme?
To implement the Scheme, the National Housing Finance and Investment Corporation (NHFIC) has contracted a panel of 27 lenders listed above instead of dealing directly with borrowers.
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 Scheme 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 Loan Deposit Scheme, please give us a call on 1300 889 743 or fill in our online assessment form today.
What is the process to apply for a guarantee under the First Home Loan Deposit Scheme?
The process to apply for a guarantee under the First Home Loan Deposit Scheme is as follows:
- An eligible first home buyer or their broker will need to enquire with one of the 27 participating lenders under the Scheme.
- The lender will then log onto the Scheme portal to ascertain if a Scheme place is available.
- If a slot is available, the lender can then reserve a place for the customer by providing their first name, last name, surname, DOB (date of birth) and medicare number.
- A first home buyer applicant can apply for a Scheme place with multiple participating lenders. It’s important to note that the Portal will automatically de-duplicate applications to ensure only one place is reserved per applicant at any given time.
- The slot can be reserved for fourteen days. During this period, a participating lender will have fourteen days to provide the applicant with a home loan pre-approval and return to the Scheme Portal to obtain a pre-approved place under the Scheme.
- To obtain a pre-approved place under the Scheme, the participating lender must provide the applicant’s details including, the taxable income of each borrower, the date of finance pre-approval, intended purchase location, and the origination channel for the loan.
- A pre-approved place under the Scheme lasts for 90 days from the date of issuance to enable the applicant to search for a property knowing that they have a loan pre-approval in hand as well as a pre-approval under the Scheme.
- Upon signing a Contract of sale, the participating lender and the applicant will then have an additional 30 days to finalise all the documentation to apply to the NHFIC for a Guarantee Certificate under the Scheme.
- Upon a Guarantee Certificate being issued, the participating lender will have 100 days to return to the Portal to update NHFIC with the loan settlement details.
Pre-approval extended amidst Coronavirus (COVID-19) pandemic
Lenders are now allowed to extend the pre-approval period for first home buyers under the First Home Loan Deposit Scheme amidst the coronavirus pandemic.
Originally, pre-approved borrowers under the scheme had 90 days to find a property and enter into a contract of sale, or they risked losing their scheme place reservation.
With the new social distancing measures and the ban on public auctions due to the coronavirus (COVID)-19) pandemic, the NHFIC has announced that participating lenders can extend a borrower’s scheme place by a further 90 days provided they still satisfy the lender’s credit requirements. This extension will be granted under the lender’s discretion.
Scheme places are still available through the participating lenders and through us.
How to request a first home buyer Scheme place reservation?
Request for a slot on the first home buyer Scheme place can only be made by participating lenders or via your mortgage broker.
Before you request a Scheme place reservation, ensure that you’ve checked your eligibility carefully.
When requesting a Scheme place reservation, initially you’ll need to provide the following information:
- Your full legal name;
- Date of birth (DOB);
- Medicare Number and IRN (IRN appears on the left of the cardholders’ name on the Medicare card and distinguishes the individuals named on the card).
- their standard of customer care, including their treatment of borrowers in financial hardship;
- the competitiveness of loan products offered by them for the FHLDS, including interest rates and other fees;
- their quality of the loan origination processes and the associated level of financial risk to the Commonwealth;
- their reputation;
- the extent to which the decision to approve a lender will promote competition in lending markets and related markets; and
- the extent to which all the lenders approved for the financial year when considered together can undertake credit activities (including through other entities providing credit services) across Australia.
- Genuine savings,
- Borrowing power including living expenses and income assessment,
- Credit score,
- Security etc. as any of them could see your application get knocked back!
- 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).
- 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.
- Buyers with low deposits will pay extra in interest over the life of the loan term than buyers with a 20% house deposit.
- The 5% home deposit Scheme is limited to only 10,000 borrowers a year or roughly 10% of first home buyers from 2018.
- 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. That’s because the Scheme is essentially encouraging people to borrow at a high Loan to Value Ratio (LVR) because the government guarantee allows you 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.
- 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.
- You must have signed the contract of sale before the settlement date for your home loan; and
- The settlement date for your home loan must be within 90 days that your home loan becomes guaranteed under the Scheme.
- A house and land package; or
- Vacant land and a separate contract to build
- Purchased the land under a contract of sale dated no earlier than settlement date of your home loan;
- Entered into an eligible building contract to build your home on that land no later than the settlement date of your home loan.
- With a licensed builder (owner-builders are not accepted);
- Specify a contract sum (fixed price) in respect of the construction of your home; and
- Require the builder to commence construction within 26 weeks of the settlement date for your home loan, and complete construction and procure the issuance of an occupancy certificate within 24 months of the settlement date for your home loan.
- 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.
- Still has an active Scheme place reserved (i.e. within the initial 14 days);
- Has been pre-approved (conditionally) for a home loan; and
- Has read the Scheme Information Guide and completed their First Home Buyer Declaration form (one for each borrower).
- Not legally married to each other;
- Not related by family; and
- Have a relationship as a couple living together on a genuine domestic basis.
- Legal action against you, including for criminal penalties and civil action;
- Your home loan is no longer guaranteed under the scheme; and/or
- There are terms of you that require you to take certain actions such as paying fees and/or having to take out a Lenders Mortgage Insurance (LMI) that wouldn’t have otherwise applied.
- 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.
You’ll also need to sign any lender specific declaration forms and consent pack as advised by your lender or broker.
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.
Remember, if you miss out because of the limited number of slots, another 10,000 Scheme places will be made available from 1 July 2020 for the 2020-2021 financial year.
What are the criteria for selection of lenders who can offer the guarantee?
The government has set the eligibility criteria for the selection of lenders who can offer the guarantee. Lenders will be selected based on:
How are lenders implementing the Scheme?
With a short window between NAB and CBA being announced as the two major participating lenders under the Scheme and the start date of 1 January 2020, lenders are gearing up for the implementation of the FHLDS.
Since the NHFIC and the lenders have had a limited amount of time to establish the Scheme, some lender processes are not complete or may initially be manual while systems are updated to accommodate the Scheme.
In this regard, NAB has announced that they will not be able to handle broker introduced loans for the Scheme on 1 January but are progressing a solution to accommodate brokers as a matter of urgency. Whereas, CBA has confirmed that they will involve brokers from the 1 January launch and will communicate the broker application process as soon as it is finalised.
The MFAA CEO commended CBA “on their early inclusion of brokers in the Scheme”. He also noted that “NHFIC will be monitoring the distribution of the Scheme through broker and proprietary channels to ensure fair and equitable access for borrowers”.
Are both NAB and CBA limited to 2,500 guarantees in a year?
If NAB and CBA are sharing 5,000 (50% of the 10,000) of the Scheme places, does that mean they both are limited to 2,500?
No, neither CBA nor NAB may issue more than 2,000 of the 3,000 Scheme places released from 1 January 2020.
All other Scheme places, i.e. 7,000, will only be made available from 1 February 2020 through other participating lenders including, a further 2,000 places made available through NAB and CBA collectively.
Which lender should I apply with for the First Home Loan Deposit Scheme?
Once you’re fairly sure that you’re eligible for the Scheme, the next crucial step is deciding which participating lender to apply with.
Since even if you’re eligible for the first home buyer scheme, the lenders will still apply their own lending criteria before approving you for the home loan.
As each first home buyers’ financial situation is different, each borrower will be more suited to a different lender.
For example, the major lenders’ credit scoring system is highly selective, that is to say, they’ll automatically decline applications with low credit scores; whereas, smaller lenders tend to be more flexible with credit scores, but then again the latter is not as flexible with unusual property/securities.
Some of the things where lender policies differ are:
Fitting into all the neat little boxes of lender policies is hard, so the key as always is to apply with the right lender from among the panel of participating lenders under the First Home Loan Deposit Scheme.
And this is exactly where an experienced brokers’ credit knowledge will be invaluable.
What if I’ve already applied with CBA or NAB?
Interestingly, other participating lenders can take over a Scheme spot from another lender.
For example, if you’ve been pre-approved with CBA or NAB already, another participating lender like Auswide Bank or Gateway can use the same Scheme place to offer a loan through them.
However, please note that the Scheme deadlines are based on the initial application date, i.e. if you’ve been pre-approved on 15 January by NAB, you still need to find a property by 14 April (90 days later), even if you applied for a loan from another bank in February.
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:
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?
Currently, under the Scheme, 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” with most lenders to qualify for the First Home Loan Deposit Scheme.
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 policy have started accepting applications. Applying with the right lender is key to approval.
Should you wait for the Scheme to come into effect?
If you are likely to qualify for the Scheme and are going to apply when it becomes available, i.e. January 2020, then we recommend that you wait.
We are expecting that due to the high demand for a limited number of places, 90% of first home buyers will miss out.
The government may yet make changes to the qualifying criteria as such so you may find out that you are not eligible at a later date.
Moreover, some property markets, such as Sydney and Melbourne, have shown signs of high growth in the last few months.
In conclusion, if you are in a high growth market, it may be cheaper to pay LMI and buy now rather than to wait and risk paying a higher price for your home.
You can use our Buy Now Or Save More Calculator to figure out which option better suits your needs.
How does the Scheme work?
Finding the deposit for your first home can be a real struggle, with most lenders currently requiring a minimum 20% deposit to avoid LMI.
Generally, it can take nine to ten years for an average household to save that deposit.
However, with this Scheme, if you’ve saved up at least 5% of the property value, the government will essentially guarantee up to 15% so you can avoid the cost of LMI and enter the property market sooner.
So, instead of having to insure your home loan with a lenders mortgage insurer and paying a hefty fee, the government will guarantee any shortfall in your deposit and act as the mortgage insurer for your home loan.
Essentially, the government will guarantee the deposits through the National Housing Finance and Investment Corporation (NHFIC) who after consulting with industry leaders has contracted a panel of lenders to implement the Scheme.
Currently, there’s no set number of deposit guarantees per state; the government will continue to monitor and shape the guarantee further.
The National Housing Finance and Investment Corporation (NHFIC) Investment Mandate Amendment (First Home Loan Deposit Scheme) Direction 2019, set out the core elements of the Scheme, including the property price caps.
How much am I saving in LMI with this Scheme?
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.
For example, a first home buyer taking advantage of the First Home Loan Deposit Scheme in NSW, Sydney with a 5% deposit and purchasing a $700,000 property can save anywhere between $27,265 and $30,657 in LMI fees depending on the lender’s mortgage insurer.
However, if you were to put up a 10% deposit, the LMI range goes down significantly between $14,301 and $15,687.
Similarly, a first home buyer availing the First Home Loan Deposit Scheme in Victoria, Melbourne purchasing a $600,000 with a 5% deposit can save anywhere between $19,073 and $28,591 in LMI fees.
You can use our LMI calculator to work out exactly how much you’re saving.
The guarantee is not a cash payment.
What are the pros and cons of the First home Loan Deposit Scheme?
What are the pros?
What are the cons?
90% of first home buyers will miss out on the Scheme!
The most significant criticism of the federal government’s First Home Loan Deposit Scheme is the cap on the number of first home buyers (FHB).
The cap set at 10,000 FHBs per financial year is less than 10% of FHBs who purchased in 2018. So inevitably, 90% of FHBs will miss out on the Scheme.
While 10,000 FHBs will appreciate the government scheme, it will do next to nothing to help the other 90,000 prospective FHBs.
Instead of band-aid solutions, industry experts want to see the government lead by example and put some of their large offices, and employment nodes in regional areas; as well as remove stamp duty, improve infrastructure, and make other structural changes.
FAQs – First Home Loan Deposit Scheme
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.
Is the Scheme available for both new and established homes?
Yes, the first home loan deposit scheme will be available for both new and established owner-occupied residential properties.
You’re also able to buy a house and land package and vacant land with a separate acceptable contract to build.
Can the Scheme be used with other government grants?
Yes, the 5% home deposit scheme can be used in conjunction with the First Home Owners Grant (FHOG) and duty concessions as well as the First Home Super Saver Scheme (FHSSS).
Will I be charged a higher interest rate under the Scheme?
No. Participating lenders will not charge a higher interest rate to eligible first home buyers under this Scheme, that means if you are successful, you will receive the same interest rates as equivalent mortgages outside of this Scheme.
Can I apply for the Scheme with a sibling?
The mortgage deposit scheme is only available to couples who are married or in a de facto relationship and are purchasing a residential property.
Unfortunately, no, you can’t buy a property with a sibling or any other family member under the Scheme. However, you may still be eligible for the Scheme as a single solo applicant.
Do we qualify for the Scheme if my spouse is on a partner visa?
Unfortunately, the First Home Loan Deposit Scheme 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.
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:
Can I use the Scheme to make an off-the-plan purchase?
Yes. When you’re making an off-the-plan purchase:
Can I use the Scheme to build my own home or purchase a house and land package?
Yes, you can; however, each type of property has its own set of requirements which are listed below.
You can use the guarantee to build your home either under:
For a house and land package, prior to settlement date for your home loan, you’ll need to have entered into a contract of sale for the land; and an eligible building contract to build your home on that land.
These can be in the same contract or two separate contracts; either contract can be dated before 1 January 2020.
For vacant land and a separate contract to build, you must have:
To be considered an eligible building contract under the Scheme, your building contract must:
Can I purchase the property as a trust or a company?
The First Home Loan Deposit Scheme is only available to borrowers who enter into a contract of sale in their own individual capacity as a natural person 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 under the Scheme?
Under the Scheme, borrowers can only buy a residential property for the purposes of living in it as your principal place of residence, i.e. an owner-occupier.
Properties to be used for commercial, investment or other purposes are not eligible.
How do I know my home loan is guaranteed under the Scheme?
Your home loan becomes officially guaranteed under the Scheme once you receive a Guarantee Certificate.
The first step is to reserve a place under the Scheme (valid for 14 days), during which period if you are successfully pre-approved for finance, you’ll have 90 days to find a property, and after which you’ll have 30 days to sign a contract of sale.
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 that 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 the first home loan scheme provided that you meet the Scheme eligibility, lender policies and the availability of guarantees.
The federal government may also review the property price thresholds in the future.
Can I use a mortgage broker?
Yes, you can use a mortgage broker to apply for a guaranteed home loan provided that the broker has a relationship with the participating lenders.
Can I sell my home and buy another one and keep the guarantee?
You can sell your home anytime that you want to.
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.
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.
Are there any hardship arrangements under the Scheme similar to the First Home Super Saver Scheme?
Participating lenders are able to offer hardship provisions under the Scheme as they do for their normal home loans.
The Scheme does not obligate a participating lender to formulate any hardship provisions/ arrangement; however, they must still follow relevant consumer laws.
Will the property price thresholds change in the future?
The decision to set the property price threshold was made to ensure that only modest homes were purchased or built under the Scheme.
There will be a review of the First Home Loan Scheme on completion of its first year of operation, i.e. January 2021.
Can I use the Scheme to purchase a property outside of Australia?
No, the 5% home deposit Scheme can only be used to purchase a residential property in Australia.
Do all participating lenders have the same criteria for the First Home Loan Deposit Scheme?
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 Loan Deposit Scheme guarantee remain in place?
The guarantee will last until:
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.
Will the government make more places available if 10,000 is not enough?
The decision to increase the number of places available under the FHLDS Scheme lies with the Australian federal government. NHFIC does not set the number of available guarantees.
Currently, the Scheme is only available to 10,000 borrowers, and a further 10,000 will be available starting from July 2020 for the next financial year (FY – 2020/2021).
My bank isn’t on the list of participating lenders, can I still apply for the Scheme with them?
No, only participating lenders can offer guaranteed home loans under the Scheme.
Will more banks be able to offer the guarantee under the Scheme in the future?
Additional banks and lenders may be periodically added to the list of participating lenders.
Currently, the 27 participating lenders include two major lenders and 25 smaller lenders.
Do I get a cash payment?
No, the Scheme is not a cash payment; rather, it is simply a guarantee.
Is there a waiting list for places under the Scheme?
Borrowers are now able to reserve a slot in the 5% home deposit scheme through a participating lender or their mortgage brokers.
NHFIC does not accept direct applications.
Do I qualify for the Scheme with a low credit score?
Eligible borrowers will have to pass the credit scoring and standard lending criteria of the participating lenders.
Both the two major participating lenders, CBA and NAB, have a credit scoring system which will automatically knock back your application if your credit score is too low.
However, that is not the case with smaller lenders, who take a more common-sense approach.
Putting your application through one of the 25 participating smaller lenders is key to availing the mortgage deposit scheme with a poor credit score.
How do I know that my application has progressed to the next stage?
The Scheme places only progress to the next stage if a customer:
Can I change my loan terms once it’s guaranteed under the FHLDS? E.g. loan top up, loan terms, or repayments?
No, loans guaranteed under the Scheme cannot change their loan term. If you wish to change/alter your loan terms, you’ll have to refinance the home loan.
However, certain limited changes are available to the borrower during the guarantee period. E.g. splitting the loan, fixing the loan. Rate changes are available as long as the eligibility criteria are met. E.g. you’re not switching to investment or interest only.
Which year’s income is used to determine eligibility? E.g. my previous years’ income is less than $120,000 on the Notice of Assessment from the ATO; however, my current income is more than that, am I still eligible?
For the Scheme, income eligibility is based on last year’s Notice of Assessment only and does not look at the income you’re earning at the time of application.
So yes, you’re still eligible provided you meet all other criteria.
I haven’t submitted my tax return yet, can I use my tax returns from 30 June 2018?
Unfortunately, if a first home buyer does not have a Notice of Assessment (NOA) to verify the previous year’s income, they’re not eligible for the Scheme.
First home buyers will need to submit their tax return for the previous financial year, and wait for the NOA to be issued to see if they’re eligible to apply for the Scheme.
I’m self-employed and have not completed my tax returns yet, and will not complete it till March 2020. Am I still eligible?
I’m afraid not. If an applicant does not have an NOA to verify the previous financial year’s income, they’re not eligible for the Scheme.
What is the definition of de facto under the FHLDS Scheme? Do we need to show proof?
Couples are only eligible for the FHLDS Scheme if they are married or are in a de facto relationship. A de facto relationship is defined as:
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.
Do 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 loan to value ratio in some areas to less than 80% LVR 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 is used to determine the Scheme eligibility? E.g. if the bank’s valuation is higher than the contract of sale?
The FHLDS uses the higher of the two values to determine FHLDS eligibility.
If either the bank valuation or the contract of sale value is above the property threshold, the customer will not be eligible.
Can I access normal home loan features such as offset, redraws, etc.?
Yes, eligible customers are able to use the same features available for owner-occupied home loans such as offset accounts and redraws.
However, you’ll not be able to extend the loan term, increase the balance, or switch to interest-only repayments while under guarantee.
Can I get discounted interest rates under the deposit Scheme?
Eligible home loans under the FHLDS Scheme are treated similarly to guarantor home loans, so they can be priced as if they were 80% LVR.
A mortgage broker can help you negotiate for a competitive rate on your home loan under the Scheme via a pricing request.
What can disqualify me from the first home buyers deposit Scheme?
When you apply for a Scheme slot, you’d have provided information and made declarations to your lender. As a final check, ensure that you as a first home buyer are aware of the possible consequences for providing untrue, incorrect, misleading or false information or materials.
These may be investigated in the future, so be certain that you’re giving true and correct information and declarations.
Penalties may include:
Customer success story: First Home Loan Deposit Scheme 2020
A married couple was looking to purchase their first home under the federal government’s First Home Loan Deposit Scheme.
We got the couple pre-approved for a $700,000 purchase under the FHLDS.
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.
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 recieved 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 if you miss out on the Scheme?
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.
You don’t have to wait for the Scheme to come into effect.
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.