From 1st January 2020, eligible Australian First Home Buyers can get home loans without lenders mortgage insurance through the new government scheme, First Home Loan Deposit Scheme. Below is everything you need to know about the scheme and eligibility.
First Home Loan Deposit Scheme Explained
If you’ve saved 5% of the purchase price of the property you are going to buy, then the government will guarantee the remaining 15% if the deposit. You still need to borrow 95% of the home loan but you avoid the Lenders Mortgage Insurance (LMI).
This scheme makes low deposit home loans cheaper and helps you get into the market earlier. Lenders Mortgage Insurance can be quite expensive. For example, if you were to buy a property costing $400,000 with a deposit of 5%, you would have to pay roughly $13,000 in Lenders Mortgage Insurance. Lenders Mortgage Insurance applies to anyone with less than a 20% deposit on their home loan. The First Home Loan Deposit Scheme removes this cost, so you are able to enter into the market in a quarter of the time it would take to save 20%.
To be eligible for the First Home Loan Deposit Scheme, you must be a first home buyers earning $125,000 or less per year. Or for couples less than $200,000 per year. If you own an investment property, you will not be eligible.
Access to this scheme however is limited to 10,000 borrowers. To give you an idea, more than 8,000 Australian First Home Buyers took out mortgages in March this year. The number of eligible homes under the scheme will also vary by region.
Will It Really Help?
Avoiding Lenders Mortgage Insurance definitely removes an obstacle, and allows you to get into the market faster. However experts are split on whether the First Home Loan Deposit Scheme will actually benefit First Home Buyers.
Firstly limiting the scheme to 10,000 borrowers reduces the schemes effectiveness. Also there is a risk in borrowing 95% in a falling market. If prices continue to fall after you buy your property, then you risk ending up in negative equity. This is where your mortgage ends up being bigger than the value of the property.
This is where you need to do your research before purchasing an established home. Or reduce the risk by saving a little bit longer. There is also two other First Home Buyer government schemes that are highly effective and valuable to First Home Buyers who choose to build or purchase a brand new home.
Other First Home Buyer Government Schemes
The good news is there are still two other government schemes offered to First Home Buyers that help immensely. The first is Stamp Duty Concessions. For First Home Buyers the NSW Government will waive stamp duty on homes under $650,000, which is one of the bigger property costs.
The second scheme is the First Home Owners Grant. This is available to all eligible First Home Buyers that are building or purchasing a brand new home under $600,000, the government will give you $10,000 towards the purchase of your home.
For example on a brand new home that costs $480,000, stamp duty would cost roughly $17,000. Together with the $10,000 First Home Buyers Grant, that’s a saving of over $27,000.
At Hurst Homes, we are here to help you every step of the way. We can arrange a consultation with your bank of choice to help you with your First Home Buyers Scheme application, as well as explain the ins and outs of borrowing and the benefits of buying vs building. At Hurst Homes we believe an informed decision is the best decision. As a local Wagga Builder for over 30 years, you can trust in our experience and expertise as we are Waggas best builder.
To get started click here and fill out our contact us form or simply call us on 6921 9988.