UPDATED: Calling all first home buyers! A must read guide to the First Home Loan Deposit Scheme

The Australian Government has launched a new initiative to support first home buyers on middle to low range incomes in purchasing their first home. This is called the First Home Loan Deposit Scheme and it provides first home buyers with the opportunity to purchase a home with as little as a 5% deposit and avoid paying Lenders Mortgage Insurance (LMI).

Launched on the 1st of January 2020, the FHLDS scheme will support up to 10,000 loan applications each year.

We've gathered the most popular questions related to the First Home Loan Deposit Scheme and have rounded up our experts answer your questions below.

2021 update

The Federal Government has since announced changes to the First Home Loan Deposit Scheme, revealing that it plans to reissue unused guarantees from the first stage of the scheme.

What happened in 2020 was that the scheme proved to be very popular, with places in the scheme becoming exhausted within a few months of launching. However, for various reasons some first home buyers did not end up finalising their purchase meaning that approximately 2,000 guarantees were not settled.

Approximately 1,800 of these unused guarantees from the 2019-2020 financial year will now be reissued to allow for more first home buyers to enter the property market. This update, along with the low interest rates of 2021, is likely to be encouraging for first home buyers. First home buyer must apply for these remaining places through a participating lender before 30 June 2021.

Additionally, from 1 July 2021, a further 10,000 places in the scheme will be introduced for the 2021-2022 financial year.

What are the pros and cons to the First Home Loan Deposit Scheme?

Benefits:

• Avoid paying LMI: The FHLDS can allow you to buy your home sooner and avoid paying Lenders Mortgage Insurance.
• You won’t be charged a higher rate for having a low deposit: Participating lenders will not charge applicants a higher interest rate.
• Available for a variety of properties: Unlike the First Home Owner’s Grant which only applies to newly built homes, the FHLDS can be used to purchase existing homes, an off-the-plan home, vacant land, or a house and land package.

Risks:

• You’ll pay more in interest over the life of your loan: While taking out a loan with a smaller deposit will mean that you can buy a home sooner, it will also mean that you’ll pay more interest in total.
• Limited numbers: The scheme will only support 10,000 first home buyers, so even if you are eligible, you might not qualify for the scheme.
• Buying with a larger loan comes with risks: A higher Loan to Value Ratio (LVR) can mean it may be harder for you to refinance in future. It may limit the lenders that are available to you and you may miss out on more competitive rates.

Can I qualify for both the First Home Owner Grant, and the First Home Loan Deposit Scheme?

Yes, you can. The FHLDS can be combined with other state and territory based home buying assistance programs such as the First Home Owner Grant (FHOG). This means that as well as buying a home with a lower deposit, you may be able to avoid paying all or a part of your stamp duty tax.

• Related: Read our complete guide to the First Home Owner Grant
• Related: What documents do I need to get a mortgage?
• Related: Your simplified guide to stamp duty

Who is eligible for the First Home Loan Deposit Scheme (FHLDS)?

• Australian citizens (must be at least 18 years of age, permanent residents are not eligible)
• Couples will only qualify for the scheme if they are married or in a defacto relationship. Other persons buying together i.e. siblings, parent/child or friends are not eligible
• Applicants must have a deposit of between 5% - 20% of the property value
• Scheduled repayments of the principal loan amount are required under the scheme for the full period of the agreement
• If the loan relates both to the purchase of vacant land and the construction of a house on the land, the loan may be an eligible loan even if the terms of the loan agreement permit interest-only repayments for a specified period
• Applicants must intend to move into the property and use the property as their principal place of residence. The property must be for owner-occupied use only, not an investment
• Applicants must be first home owners who have not owned another property previously (jointly or separately) regardless if it was owner-occupied or investment property, and regardless of whether the property was actually lived in

What income brackets are eligible for the First Home Loan Deposit Scheme (FHLDS)?

• Singles: taxable income of up to $125,000 per annum
• Couples: taxable income of up to $200,000 per annum
• Note that incomes will be assessed for the financial year preceding the financial year in which the loan is approved

What type of property can be purchased in the First Home Loan Deposit Scheme (FHLDS)?

• An existing property (house, townhouse or apartment)
• A house and land package
• Vacant land with a separate building contract to construct the home
• An off-the-plan purchase (apartment or townhouse)

What are the property price limits for the First Home Loan Deposit Scheme?:

Recognising that dwellings in regional centres tend to be significantly more expensive than other regional areas, the capital city price thresholds for the FHLDS also apply to regional centres with a population over 250,000 (the Gold Coast, Newcastle and Lake Macquarie, the Sunshine Coast, Illawarra (Wollongong) and Geelong).

How do applicants apply to the First Home Loan Deposit Scheme?

Applications can be lodged through participating lenders, with help from a Lendi Home Loan Specialist. You can see if you qualify by clicking here and choosing a time to chat with an expert.

What lenders are participating in the FHLDS?

• Australian Military Bank
• Auswide Bank
• Bank Australia
• Bank First
• Bank of us
• Bendigo Bank
• Beyond Bank Australia
• Community First Credit Union
• CUA
• Defence Bank
• Gateway Bank
• G&C Mutual Bank
• Indigenous Business Australia
• Mortgageport
• MyState Bank
• People’s Choice Credit Union
• Police Bank (including the Border Bank and Bank of Heritage Isle)
• P&N Bank
• QBANK
• Queensland Country Credit Union
• Regional Australia Bank
• Sydney Mutual Bank and Endeavour Mutual Bank (divisions of Australian Mutual Bank)
• Teachers Mutual Bank Ltd (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)
• The Mutual Bank
• WAW Credit Union

So there you have it, the First Home Loan Deposit Scheme explained. If you have any home loan questions or want to see if you are eligible for the FHLDS, then jump on the Lendi platform or chat to a Home Loan Specialist here.

See how much your monthly repayments might be

• Related: What increases the value of property? Australians weigh in
• Related: How to negotiate a lower interest rate on your home loan

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.