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

Eligibility criteria

Lenders taking part

Pros and Cons

What other schemes are available for first home buyers?

Scheme explained

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.

Eligibility

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:

Australian Military Bank	Auswide Bank	Bank Australia
Bank of us	Bendigo Bank	Beyond Bank Australia
Community First Credit Union	CUA	Defence Bank
G&C Mutual Bank	Indigenous Business Australia	Mortgage port
NAB	People’s Choice Credit Union	Police Bank (including Border Bank and Bank of Heritage Isle)
QBANK	Queensland Country Credit Union	Regional Australia Bank
Teachers Mutual Bank (including Firefighters Mutual Bank, Health Professionals Bank and UniBank)	The Mutual Bank	WAW Credit Union
Bank First	Commonwealth Bank	Gateway Bank
MyState Bank	P&N Bank	Sydney Mutual Bank and Endeavour Mutual Bank

Pros and Cons

Pros

• 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: –

Cons

• 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
NSW	$700,000	$450,000
VIC	$600,000	$375,000
QLD	$475,000	$400,000
SA	$400,000	$250,000
WA	$400,000	$300,000
TAS	$400,000	$300,000
ACT	$500,000	$500,000
NT	$375,000	$375,000

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: –

ACT- $0 https://www.revenue.act.gov.au/home-buyer-assistance/first-home-owner-grant

NSW- $10,000   https://www.revenue.nsw.gov.au/grants-schemes/first-home-buyer

Northern Territory $20,000 https://treasury.nt.gov.au/dtf/territory-revenue-office

Queensland- $15000 https://www.qld.gov.au/housing/buying-owning-home/financial-help-concessions/qld-first-home-grant/apply-first-home-grant

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.

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.