Buying your first home requires a substantial amount of savings to secure a home loan. However, there are government schemes to ease the deposit burden for first-time home buyer loans.
This article explains how the First Home Loan Deposit Scheme (FHLDS) works and who qualifies for it. The scheme is run by the National Housing Finance and Investment Corporation (NHFIC), which is a government-run scheme aimed at helping first-time homebuyers buy their properties sooner.
The government hopes to achieve this by shortening how long it takes eligible candidates to save up for their deposit. It both reduces the required deposit to 5% of the property value and allows these candidates to avoid paying lenders mortgage insurance (LMI).
Every financial year — starting on 1st July 2021 — 10,000 schemes are released to the public. The NHFIC does not take direct applications. The schemes are instead made available through participating banks and lenders.
Update: The Australian Government is issuing 4,651 additional guarantees to support first home buyers who haven't yet had an opportunity to purchase their first home, including those subjected to COVID disruptions. These scheme places were expected to be available in early 2022.
Inside this guide
How does the First Home Loan Deposit Scheme work?
Here are the major points that break down what the scheme achieves and how it works.
- The applicant will need to pay a deposit of 5% (rather than the usual 20%) to secure a home loan.
- The government will act as a guarantor for the remaining 15% of the normal deposit required.
- The applicant will have to borrow and pay back the remaining 95% of the home loan.
- The applicant doesn’t need to pay LMI, which is often required for small deposits.
- The property will need to be a residence and lived in by the applicant.
You can apply for this scheme through participating lenders. Since there are a limited number of spots, it can be competitive.
First Home Loan Deposit Scheme by state, 2021
There are differing upper limits on the value of the houses eligible for the scheme in the different states. There is also a scheme dedicated to building new homes. This is FHLDS’s ‘New Home Guarantee’. The upper limits are higher for this scheme.
The price ranges also change between the city, large regional centres, and regional areas. Let’s look at the different price caps for existing (i.e. not newly-built) properties by state2, for capital cities and large regional centres.
NSW
- For the fiscal year 2020-2021, the upper limit was $700,000.
- For the fiscal year 2021-2022, the upper limit is $800,000.
VIC
- For the fiscal year 2020-2021, the upper limit was $600,000.
- For the fiscal year 2021-2022, the upper limit is $700,000.
QLD
- For the fiscal year 2020-2021, the upper limit was $470,000.
- For the fiscal year 2021-2022, the upper limit is $600,000.
ACT
- For the fiscal year 2020-2021, the upper limit was $500,000.
- For the fiscal year 2021-2022, the upper limit is $500,000.
SA
- For the fiscal year 2020-2021, the upper limit was $400,000.
- For the fiscal year 2021-2022, the upper limit is $500,000.
TAS
- For the fiscal year 2020-2021, the upper limit was $400,000.
- For the fiscal year 2021-2022, the upper limit is $500,000.
WA
- For the fiscal year 2020-2021, the upper limit was $400,000.
- For the fiscal year 2021-2022, the upper limit is $500,000.
NT
- For the fiscal year 2020-2021, the upper limit was $375,000.
- For the fiscal year 2021-2022, the upper limit is $500,000.
The price caps for regional areas are different and much lower than those for capital cities and large regional centres.
How to qualify for the First Home Loan Deposit Scheme
There are specific criteria you must meet to be eligible for the FHLDS. You can view this fact sheet from the NHFIC for more details about the requirements. However, for now, let’s take a brief look at what is required:
- You must be an Australian citizen at least 18 years of age.
- Your taxable income cannot exceed $125,000 per year if single (or $200,000 per year combined for couples).
- Other people buying a home together do not qualify. These include siblings, parents, children, friends, etc.
- The saved deposit must be at least 5% of the property’s value. Buyers who have 20% or more saved are ineligible for the scheme.
- Applicants must be first home buyers. Even if only one spouse in the relationship has previously owned property and one has not, this will still disqualify the applicants.
- Applicants must reside in the chosen property. No investment properties can be funded through the scheme.
- The loans provided through the scheme require scheduled repayments of the loan amount and interest for the full term of the agreement. There are a few exceptions for interest-only loans, which in this situation are usually construction loans.
Property types that can be bought
This scheme requires that the property be a residential property. These are specifically:
- an existing house, townhouse, or apartment;
- a house and land package;
- land and a separate contract to build a home;
- an off-the-plan apartment or townhouse.
FAQs
Do I need to pay LMI if I qualify for the scheme?
No, you don’t need to pay LMI if you qualify. This is one of the main benefits of using the scheme.
Do all lenders participate in the FHLDS in 2021/22?
There is a specific list of lenders that participate in the FHLDS4.
They are:
- Australian Military Bank
- Australian Mutual Bank
- Auswide Bank
- Bank Australia
- Bank First
- Bank of Heritage Isle
- Bank of Us
- bcu
- Bendigo Bank
- Beyond Bank Australia
- Border Bank
- Commonwealth Bank
- Community First Credit Union
- Defence Bank
- Firefighters Mutual Bank
- G&C Mutual Bank
- Gateway Bank
- Great Southern Bank
- Health Professionals Bank
- Indigenous Business Australia
- Mortgageport
- MyStateBank
- NAB
- P&N Bank
- People's Choice
- Police Bank
- QBANK
- Queensland Country Bank
- Regional Australia Bank
- Teachers Mutual Bank
- The Mutual Bank
- UniBank
- WAW
Will my interest rate be higher under FHLDS?
No, your interest rate will not be higher than if you didn’t use the scheme.
But bear in mind that one of the drawbacks of using this scheme is that a lower deposit could result in a longer time required to pay off your loan. This means that the interest paid over the loan’s lifetime amounts to much more than interest paid by borrowers with a 20% deposit.
What happens if I need to switch banks?
You can maintain the guarantee if you can move the same loan between two participating lenders. You will not be able to increase the loan’s value or the loan duration.
