First Home Guarantee Explained: The Updated First Home Loan Deposit Scheme

In the 2022-23 federal budget, the Australian government announced that it would expand its First Home Loan Deposit scheme, renaming it the First Home Guarantee, allowing more first home buyers to access financing for the purchase of new homes.

From 1 July 2022 until 30 June 2025, 50,000 low deposit scheme placements will be offered annually. After these three years, 35,000 placements per year will be offered.

To help you get a better understanding of how the process of buying a new home under the First Home Guarantee scheme works and how you can qualify, we have put together a simple guide highlighting everything you need to know.

What is the First Home Guarantee Scheme?

The First Home Guarantee Scheme, formerly known as the First Home Loan Deposit Scheme (FHLDS), came into effect in January 2020. The scheme allows qualifying first home buyers to buy new homes with deposits as low as 5%, without paying Lenders Mortgage Insurance (LMI).

In simple terms, this means first home buyers who can’t reach the 20% deposit threshold that most lenders require, can take out a loan if they have saved at least 5% of the value of building a new home and the government pays the 15% difference.

How does the First Home Guarantee Scheme Work?

To apply for the First Home Guarantee scheme, you need to demonstrate that you meet the eligibility requirements needed for approval. If you are approved, the government will guarantee a portion of your first home loan.

For example, if you want to purchase a home worth $550,000, you will need to contribute $27,500 as a deposit and the government will ensure $82,500 of your loan, boosting your security up to $110,000 (20%) of the total worth of the new home build and excluding government taxes like stamp duty.

Am I Eligible for the First Home Guarantee Scheme?

First and foremost, you must be a first home buyer purchasing a new home and have not owned a residential property or investment property anywhere in Australia. You must be over the age of 18 at the time of application and an Australian citizen to be considered for this scheme.

You’ll also have to meet specific requirements regarding your salary, your mortgage, and the home itself.

Salary

To qualify for the First Home Guarantee, you must have earned $125,000 or less in the previous fiscal year and provide an ATO assessment notice for proof of income. If you’re purchasing a new home with a spouse, you must have earned a combined taxable income of less than $200,000 in the previous fiscal year.

For Singles and Couples

You can apply for the scheme as a single first home buyer or as a couple. If applying as a couple, you must be married or in a de facto relationship. You and your partner can both apply if you buy a home together, or one of you can apply if you buy a home alone. You will not be eligible if you want to buy a new home with someone you have a unique dynamic with, such as a family member. These include siblings, parents, friends, or grandparents.

Building a New Home

An eligible first home buyer can buy or build a new home, this includes house & land packages. However, there is a limit to the amount the recipient can spend on building a new home. These vary depending on each state and also city and rural areas.

In Western Australia, the threshold is $500,000 for Perth and regional residents while the threshold for the rest of the state is $400,000.

The National Housing Finance and Investment Corporation (NHFIC) reviews these prices yearly, with the most recent criteria set in July 2021. Use their postcode search tool here to check price caps in your location.

Deposit

The government requires that your 5% low deposit contribution must be “proved savings.” In other words, money from the First Home Owner Grant is not included in this amount.

What If I’m Not Eligible for First Home Guarantee?

For those who don’t qualify for the scheme, some simple financial strategising might make it possible to get on the homeowner ladder sooner than expected. This is only if you don’t pay the lender’s mortgage insurance. You can ask a family member to be a guarantor to cover all or part of your deposit or you may be eligible for the First Home Owners Grant.

Speak to us at Aspire Building Brokers about home buying options you may have yet to consider. We can provide you with the next steps to assist you in purchasing your first home. Contact us today!

Frequently Asked Questions

Here are some common questions about the First Home Guarantee scheme that could be helpful.

1. Can We Qualify If I Have Never Owned Property, but My Partner Has?

No, neither home buyer can own any real estate in Australia, whether alone, jointly or with third parties.

2. What Happens if I Am Unable To Make My Payments?

The Scheme’s home loan insurance is subject to the usual lending terms and conditions, and consumer protection legislation. The Scheme cannot offer any special protection over and above these conditions. Please notify your participating lender/bank if you are having difficulty meeting your loan repayments.

3. What if I Need To Relocate and Rent a Home?

If you vacate your new home, your mortgage would no longer be insured by the Scheme’s guarantee. Furthermore, depending on the terms and conditions of your home loan, you may be required to pay penalty rates and other fees.

4. Can I Build a New Home Through the Scheme as a Trust or Company?

The First Home Guarantee Scheme is available only to individuals who execute a sales contract as an individual under their name. As such, you cannot acquire a home through the Scheme if you act through a trust or a business.

Aspire Building Brokers can talk you through additional information on the First Home Guarantee Scheme, including how to submit a successful application with documentation you will be required to provide. Get in touch with us to help make your home buying process an easy one.