What You Need To Know About the First Home Loan Deposit Scheme (FHLDS)

Having a hard time saving for a deposit? The FHLDS might be the answer you’ve been looking for.

For years, the Australian property market has been experiencing an affordability crisis. Many first-home buyers have found it hard to get the home that they want, where they want to live.

Things have started to get better though. Ironically, you’d have to credit the downturn. All of a sudden, homes are more affordable then they were but the market is rebounding and prices are rising again. 

Are Australian homes cheap?

Not at all. Many people still find the required 20% deposit hard to come by. 

Luckily, the Government wants to change this, at least for the average first-home buyers. The First Home Loan Deposit Scheme (FHLDS) can make your desired home much more accessible. 

Let’s take a look at what it is, before showing you what you can do to make sure you qualify.

What Is the FHLDS?

The FHLDS is a Government initiative that’s scheduled to go into effect on January 1st, 2020. It eliminates the need to put up a 20% deposit when buying a home. Eligible first-home buyers will be able to purchase a home with as little as 5% down. The way it works is that the Government will guarantee the remaining 15% needed to reach 20%.

You might think that you’ve seen something like this before. After all, there are other loan types and programs that allow people to buy a home with a 5% deposit. However, there’s a big difference here.

Traditionally, if you only put down a 5% deposit, your lender would require you to take out Lenders Mortgage Insurance (LMI). This protects the lender in the event that the borrower defaults on the loan.

LMI can be rather expensive. You’d have to pay a premium in the range of thousands, or even tens of thousands depending on how much you’re borrowing.

The best thing about the FHLDS is that the Government guarantee did away with LMI. You still have to pay back the 15%, but you now only have to save 5% to buy your first home, and without any penalty at that.

What’s more, you may also be eligible for stamp duty concessions. The requirements and availability vary between States and Territories, but it’s usually a significant chunk. For example, you can save up to $36k (6%) on a $600k home in Melbourne.

As mentioned, the initial rollout does come with a catch. Only 10,000 people initially will be eligible for the FHLDS and there are caps on the maximum purchase price based on where you are buying. Let’s take a closer look at the requirements.

Who’s Eligible for the FHLDS?

The 10,000 cap is about 10% of all first-home buyers in Australia in 2018. But this shouldn’t discourage you, as it’s possible to be one of the lucky ones.

It’s a program targeted at Australians of average income. The FHLDS is available to singles earning up to $125,000 per year. For married couples, that threshold goes up to a combined income of $200,000. They both must not have previously owned a home, i.e. two first-home buyers.

The federal Government has also put a cap on the property value. This means that it will vary from region to region based on average property prices. 

The price caps are as follows:

  • NSW: A price cap of $700,000 in capital cities and regional centres, with a cap of $450,000 in the rest of the state.
  • Victoria: A price cap of $600,000 in capital cities and regional centres, with a cap of $375,000 in the rest of the state
  • Queensland: A price cap of $475,000 in capital cities and regional centres, with a cap of $400,000 in the rest of the state
  • Western Australia: A price cap of $400,000 in capital cities and regional centres, with a cap of $300,000 in the rest of the state
  • South Australia: A price cap of $400,000 in capital cities and regional centres, with a cap of $250,000 in the rest of the state
  • Tasmania: A price cap of $400,000 in capital cities and regional centres, with a cap of $300,000 in the rest of the state
  • ACT: A price cap of $500,000
  • Northern Territory: A price cap of $375,000

Your income will also be a limit after all the lender has to be confident you can repay the loan. For one, the lender isn’t going to approve a $1 million loan if you’re making $125,000 or less per annum.

For now, this is all the information that’s available on the eligibility criteria for the FHLDS. But you might imagine that the Government will be firming up all the details and criteria before the turn of the year. At this stage it is expected that the allocation of funds for this scheme is exhausted in the first 6 weeks so getting ready early is a priority.

So, will you be one of the ten people on average who’s selected for the Scheme? Your chances are higher if you act fast. The National Housing Finance and Investment Corporation (NHFIC) will handle the guarantees. They’ve started to consult with different lenders that will participate in the programs. 

But that’s not the only reason why you should start preparing right now.

Investors Choice Mortgages

You Must Act Fast and Here’s Why

As you can imagine, many first-home buyers will try to apply for the FHLDS. Most experts are sure that the demand will outstrip the supply. 

A group of wealthy home builders has joined forces with Simonds Group to start their own private initiative. Piers O’Brien, the director of Simonds Group, explained:

‘There’s going to be significant over-demandTime on what the Government is going to be able to meet.’

This is all the proof that you need about the projected demand for the FHLDS. This is why you need to put yourself in a prime position to be one of the 10,000. This means following the news closely and making sure that you’re not just eligible but ready to apply as soon as any new criteria show up.

For now, let’s go over some things that you’ll want to keep in mind.

Important Things to Consider When You Apply

Although the Scheme is quite targeted, there are things that you can do to make sure that you get it. The most important thing is to look at the eligibility criteria like you would any loan or grant.

Prime Minister Scott Morrison explained that the Scheme isn’t free money – as stated, you still have to pay the Government guaranteed 15% back. So you will have to contribute 5% down and borrow 95% of the purchase price (without any LMI). Per the Prime Minister, lenders ‘will still do all the normal checks on the borrowers to make sure they can meet their repayments.

So, if you haven’t qualified for a loan before, you have work to do before January 2020. You need to inspect your credit report and see what you can do to improve your score. You should be thorough and make sure that there aren’t any red flags that would get your application declined. Now would be the perfect time to revisit your spending habits and see what you can do to make you a more reliable borrower in the eyes of lenders.

Of course, it also means that you’ll want to pay off as much of your current debt as possible, as long as it doesn’t affect your deposit. You should have an expert mortgage broker assess this for you before you start paying down debt. In addition, you might not want to apply for any new debt, like a new phone or credit card increase. You’ll want to keep your credit profile clean as possible to improve your credit score.

Another important thing to remember is that you can combine the FHLDS with other grants and concessions. For example, you can use it in conjunction with the FHOG and stamp duty concessions, along with the FHSSS. This might help you save even more and get into the market sooner. For instance if you buy in Melbourne a $600,000 property, you can save $31,000 in lenders mortgage insurance and $29,000 in stamp duty. All with a $30,000 deposit ( you will need $200 more for legal and inspection costs).

Just be careful about refinancing your loan under the FHLDS. The Scheme would expire if you refinance and get out of the original loan. Normally, the Scheme will go away as soon as the outstanding principal falls below 80% of your home’s purchase price. It’s not needed anymore since you’ll have have 20% in equity. Therefore, you might want to wait until then before refinancing your loan.

Lastly, you’ll want to keep the loan-to-value ratio (LVR) in mind. The FHLDS helps first-home buyers purchase a home at a very high LVR thanks to the Government guarantee. Since the 15% is a guarantee and not free money, you’ll be borrowing 95% and so there’s a fair risk of getting into negative equity if you buy a property over the market price or if it loses value. This is where the outstanding loan balance is higher than the value of your property.

Come Prepared

As you can see, the FHLDS can be an excellent way to get into the property market for those who qualify. You can avoid having to pay for LMI and furthermore you can combine this with other grants and stamp duty concessions, meaning you need less than you think to buy your first home. Considering that this can add up to tens of thousands of dollars, it’s definitely worth doing everything in your power to get your hand on the Scheme.

Don’t forget to stay up-to-date with all the latest news about the FHLDS and all the eligibility criteria. This will give you a big advantage and raise your chances of becoming one of the 10,000 buyers earmarked for the grant in 2020. To do that, you’ll want to be the first one to get in touch with your preferred lender as soon as the Scheme becomes available.

Of course, you don’t have to do all of this on your own. We can help you prepare for the FHLDS through our dedicated Home Loan specialists specialising in assisting first-home buyers. 

All you have to do is contact us today at Investors Choice Mortgages. We will assess your borrowing capacity, we will purchase a credit report for you so we can check your credit score (no nasty surprises), and assess your potential eligibility to meet the FHLDS requirements. We will provide you with a lending proposal, a strategy call, access to the First Home Buyers Course (RRP $495), and access to research tools like CoreLogic RPData (RRP $150pm). Aside from this, you’ll receive buying checklists, inspection checklists and a complimentary credit report, as well as support in preparing your loan application, liaising with your conveyancer and completing your FHB Grant and Concession paperwork.

Get yourself setup so you are in the best position to be one of the lucky 10,000. Book a time to speak to one of our first home buyer specialists by clicking the link below. https://investorschoice.com.au/bookatime