The First Home Buyer Guarantee (FHBG) scheme is part of the Home Guarantee Scheme (HGS), which is an Australian Government initiative designed to support eligible first home buyers in purchasing a home sooner and helps reduce the costs in buying your first home.
It assists aspiring first home buyers by providing 35,000 guarantees each financial year for eligible loans to home buyers with a deposit of between 5 and 20% of the property value. As more and more first home buyers are forced to purchase their first home with a low deposit home loan, it is important to consider what options are available to you when planning to buy your first home.
One alternative to buying your first home is by getting a low deposit loan with as little as 5% with Lenders Mortgage Insurance (LMI) applying as a cost of getting your first home loan. This will apply to those that may not qualify for the FHBG scheme, potentially by not meeting the eligibility criteria mentioned below.
How do you qualify for the FHBG Scheme?
To ensure you can take advantage of the FHBG scheme, you must meet the following criteria:
- Applying as an individual or two joint applicants. Minimum 18 years old
- Must have a deposit of 5% available if you buying as an individual or with your partner. If you are buying as a single parent, then 2% is the minimum deposit required
- Australian citizens or permanent residents.
- Earning up to $125,000 for individuals or $200,000 for joint applicants (as shown on the latest Notice of Assessment issued by the Australian Taxation Office).
- Intending to live in the property you are purchasing your first home
- Must not have owned or had an interest in a property in Australia (including land only) in the past ten years.
- New Zealand Citizens are classified as Permanent Residents for citizenship applications only
- Your property purchase price must be below the relevant threshold provided by Housing Australia for your desired suburb/city.
If you meet all of the above criteria, then you may qualify for the Government Scheme, which will allow you to avoid LMI.
In what cases would LMI apply to my first home loan?
Lenders Mortgage Insurance (LMI) is insurance that a lender takes out to insure itself against the risk of not recovering the outstanding loan balance if you, the borrower, are unable to meet your loan payments and the property is sold for less than the outstanding loan balance – it will usually apply if your deposit is less than 20% of the property purchase price. It is important to understand that LMI covers the lender, not you. LMI can range from 0.5% to 3.5% of your intended property purchase price. All lenders will allow you to add this cost to your total home loan.
LMI would most likely apply if you are unable to satisfy the eligibility requirements for the FHBG Scheme as mentioned above. The main reasons may include:
- Your individual or joint income is more than the FHBG thresholds
- If both applicants aren’t a permanent resident or citizen
- Your property purchase price exceeds the property purchase price thresholds set by Housing Australia
Whilst the FHBG Scheme will help you in avoiding the cost of LMI, paying LMI may still be an option to consider especially if you are concerned about property prices growing further in your desired suburb of purchase. If you are waiting to purchase a property so you can save a 20% deposit to avoid LMI, there may be risks associated with this strategy, as your desired property could be worth more in the future as opposed to now.
Are there any other methods to avoiding LMI?
Absolutely, FHBA Mortgages, across its panel of lenders has access to some special offers for certain professionals and eligible first home buyers who may have 15% saved in the form of a deposit. Some of these include:
- Qualifying medical professionals can access no LMI with a deposit as little as 5% (without the FHBG Scheme) with no maximum income thresholds
- Registered nurses, midwives, occupational therapists & speech pathologists can access LMI waivers with a 10% deposit with no maximum income thresholds
- Accountants, Lawyers, Financial Planners can borrow up to 90% of the property value without LMI, certain conditions do apply
- For those with a 15% deposit, first home buyers can access LMI waivers with some lenders
If you are looking to determine whether the FHBG Scheme applies to you, if you should buy your first home with LMI or if you are eligible for any other ways to avoid LMI, it is best to contact a FHBA Coach by booking in a complimentary discovery session below:
