As the economy is showing no signs of upward moment, RBA slashing Interest rates, banks becoming more competitive, Australian Government has stepped in to make sure economy keeps on moving. In this article I am going to discuss few things relevant to this scheme.
Explaining the scheme itself
Lenders taking part
Pros and Cons
What other schemes are available for first home buyers?
Under this scheme, you will need mere 5% deposit to buy the house, rest 15% will come from the government and they will become your guarantor. Example will explain this in an easy way-
House price- $470,000
5% deposit- $23500
So, under normal conditions you will have to pay LMI on loans above 80% LVR or if you do not have a 20% ($94,000) towards the purchase. LMI on 5% borrowing would be normally around $15,000. Estimate taken from https://www.genworth.com.au/lenders/lmi-tools/lmi-premium-estimator/. Now this amount is going to be paid by the government and that’s an excellent news. It does not take long to save $23,500 anyways if you are budgeting yourself right. Well far better than saving $94,000.
This scheme is only available to Australian citizens (not permanent residents). First home buyer buying owner occupied property (if you own an investment property you won’t be eligible) earning $125,000 for single or $200,000 for a couple a year or less.
Lender taking part
According to the NHFIC the following lenders will participate in the scheme:
Pros and Cons
- You will be able to owe you own home with as little deposit of just 5% of the property price.
- Saving on LMI (Lender’s Mortgage Insurance)
- Scheme starting on 1 Jan 2020
The scheme is open to a range of property types including: –
- An existing Apartment, Townhouse or house
- House and Land packages
- Off the plan apartments and townhouses.
- Banks won’t be charging higher interest rates; normal credit criteria will apply.
- Only eligible for Australian citizens
- Couple needs to married or in defacto relationship. Friends, siblings etc are not eligible
- Only available to $10,000 first home aspirants.
- Properties are capped depending on where you want to buy- see chart below:
|State/Territory||Capital city/regional center*||Rest of state|
Look up your suburb or postcode on the NHFIC website to see the property price threshold –www.nhfic.gov.au/what-we-do/fhlds/eligibility/
Risk for borrowing 95% of property price
If property prices fall and you buy a home with a 5% deposit you risk ending up in negative equity*. This is when your mortgage ends up being bigger than the value of the property.
Example- You bought a property for $470,000 with 5% deposit. Total loan- $446,500 and suddenly the property market falls. The property value drops to $460,000 but you owe $446,500, this means your value of property is less by $500 as compared to loan. This is just an example.
Having negative equity makes it harder to sell your property or refinance. But if you keep paying off the loan principal and property prices rise you should be OK in the long run.
What other schemes are available to first home buyers?
1. First homeowner grant– Depending on where you live in Australia, governments offer a sum of money to eligible first home buyers to use towards purchasing the first home.
List is as below: –
Northern Territory $20,000 https://treasury.nt.gov.au/dtf/territory-revenue-office
South Australia -$15000 http://www.revenuesa.sa.gov.au/generic-pages/i-am-a-first-home-buyer
Tasmania – $20,000 https://www.sro.tas.gov.au/
Victoria – $10,000 https://www.sro.vic.gov.au/fhogapply
Western Australia – $10,000 https://www.wa.gov.au/organisation/department-of-finance/fhog
2. Stamp Duty Concession– https://stampduty.calculatorsaustralia.com.au/
3. The first home owner super saver scheme– http://avjeetgill.com/first-home-super-saving-scheme/
These schemes can be used in combination or simply together.
- auswide bank
Avi Gill is an Accredited Finance Specialist with more than 5 years’ experience in the industry. He is also a successful blogger who is committed to informing people of latest developments happening in the Finance and Investment Sector.