So, you’ve been saving for your first home for a while and you want to save a good deposit - at least 20% - but you’re not quite there yet, because that’s likely upwards of $80,000 (on a $400,000 house). Sound familiar?
Thanks to the Australian Government’s Home Guarantee Scheme or HGS, your first home might be in reach sooner than you think, and P&N Bank is proud to be one of the lenders participating in the Scheme.
The Home Guarantee Scheme is designed to help first-time buyers reach their home ownership dreams sooner by reducing the deposit amount and avoiding Lender’s Mortgage Insurance (LMI). LMI is a type of insurance to protect the bank or lender, and on a $400,000 property it could be anywhere from $3,500 to more than $12,500.
For approved scheme placeholders, the Australian Government will provide a guarantee to the bank or lender, allowing buyers to purchase their first home with a deposit of as little as 2% - and no LMI is added. Put simply, the Government will bridge the gap between the borrower’s saved deposit and the 20% deposit required to avoid the LMI fee.
There are a limited number of places available each financial year for the scheme, and these are split across three Guarantees: First Home Buyer Guarantee (FHBG), Regional First Home Buyer Guarantee (RFHBG) and Family Home Guarantee (FHG).
Normally, if your deposit is under 20% (that’s the $80,000+ we were talking about), you’d need to pay the LMI fee, but under the scheme, the Government will guarantee the difference, eliminating the need for LMI. This shaves years off the time it takes to get a deposit together.
In ordinary circumstances, you may have to pay the LMI fee upfront if your deposit is only 5%. This is because the value of the property plus the cost of LMI and other fees may end up exceeding the threshold of what the bank or lender can safely lend you.
Remember – this is a guarantee only, it’s not a cash payment towards your loan. Your loan value will still be the full amount of the property plus applicable loan fees, less your deposit amount.
The eligibility for the three Guarantees differs slightly, but to be eligible for any of them you’ll need to be an Australian citizen or permanent resident, aged at least 18, with an annual income of less than $125,000 if you’re single - or $200,000 if you’re buying with someone else. For the FHBG and RFHBG you’ll need to have a 5% deposit, and for the FHG you’ll need 2%.
See more eligibility criteria on our First Home Buyer pages.
As well as your deposit, you’ll also need to have additional funds to cover stamp duty, although this is typically waived for first home buyers within certain conditions. Our stamp duty calculator will help you see how much you need to cover. There will also be bank fees, legal fees and government transfer fees to budget for, and you may also need to cover building or pest inspection costs. Find out more about the costs involved when buying a home.
If you’re accepted into either of the three Guarantees, you can purchase a home (new or established) – which can be a house, townhouse or apartment - or a house and land package, valued at up to $600,000 in metro WA, or $450,000 in regional WA. The amount varies in other states.
You may be eligible for assistance from the State government instead. The First Home-Owner Grant (FHOG), First Home-Owner Rate of Duty (FHOR) and Home Buyer’s Assistance Account Grant (HBAA) are all specific to WA, and we have more information available.
We’re also here to help. Talk to us about the other options that may be available to you - you may still be able to proceed if your deposit is below 20%.
Ready to get into your first home or would you like further information on the scheme?
If you’re ready to apply, or want to find out more, here’s what you need to do:
Scheme places are first in, best dressed and are released each July.
Eligibility and lending criteria, fees and charges apply. Terms and conditions apply and are available on request. Any advice given is general only and does not take into account your personal objectives, financial situation or needs.
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