Everything you need to know about the First Home Buyers Scheme

Most first-home buyers could use a leg up onto the property ladder. And the First Home Loan Deposit Scheme could help you get there sooner, if you’re eligible. Here’s your guide to the scheme.

What is it?

With the First Home Loan Deposit scheme, the government helps people buy their first, “modest”, home. It provides a guarantee to your loan, even if you only have 5% deposit, so that you don’t have to pay lender’s mortgage insurance (LMI). LMI generally adds up to around $10,000–$15,000.

All participating lenders have agreed to offer the same rate of interest to first home buyers applying with the scheme as those applying without.

You’ll need to prove you’ve never had a financial interest in land or property in Australia before, including commercial property. And the scheme is not for investment properties – you have to live in the house.

There are 10,000 places available each tax year – and the second lot was just released in July.

A spokesperson from Commonwealth Bank of Australia (CBA) says it has proved a popular scheme so far.

“Based on the number of enquiries we have received from lenders and brokers, we expect demand for the next round of places to be similar to when the scheme first launched.”

Already, 2,500 customers have bought a home with CBA under the scheme.

Who’s eligible?

You must fit the following criteria:

• Be an Australian citizen.
• Both singles and couples can apply for the scheme. Want to buy with your best buddy or cousin? Unfortunately you’re not eligible.
• You have to earn under $125,000 as a single and under $200,000 as a couple, for the previous tax year.
• Be aged over 18.
• Have between 5% and 20% of your property price saved.

Check out the full criteria for the First Home Loan Deposit Scheme.

Which homes are eligible?

We all like a bit of extra help from the government, but this one isn’t available for all homes.

As the scheme is for a “modest” home, there are price caps, which depend on the area you’re buying in. For example, in Sydney, the price cap is $700,000 when the median house price was $1 million in March. Mind you, there are some suburbs where median house prices are set to drop below $700,000.

The scheme can apply to an existing house, a house and land package, an “off-the-plan” buy and land with a separate contract to build. There are also further conditions around the property you buy.

How do I apply?

You apply for the scheme with one of the 27 participating lenders, such as NAB or Commonwealth Bank, or their authorised mortgage brokers.

It may be possible to use both the scheme and other government incentives, such as the First Home Owner Grant and HomeBuilder.

You need to have your tax sorted before your application will be approved, including your notice of assessment.

What are the potential downsides?

It’s an attractive option for those with a small deposit, but it’s important not to overstretch yourself financially. Because your deposit is lower, you’ll be paying interest on a higher percentage of your loan. That means you get your house sooner, but you may pay more in the end.

Before applying for the scheme, make sure you’ve done your research on the market first. Once you get pre-approval, you have just 90 days to find a house and get a contract. During COVID-19 you may be able to apply for extension.

Remember that there’s a limited number of guarantees available. So even if you’re eligible for the scheme, it doesn’t mean you’ll get approved.

Although competition is high, the scheme is not yet well-known. A survey by mortgage broking firm Aussie revealed that 85 per cent of first-home buyers hadn’t even heard of it. So if you may be eligible, now is the time to speak to your lender.