In May this year the Federal Government put through a First Home Loan Deposit Scheme to make it easier for first home buyers to get into the market. It will be implemented from the 1st January 2020.
So should you wait until January 2020 to buy your first home and take advantage of this new scheme or should you continue your property search as per current plans?
We’ve been asked this question many times since the scheme was adopted. We hope this article helps you to make that decision.
If you are still unsure, please contact us to discuss your personal situation with one of our lending specialists.
Will you be eligible?
Firstly, you’ll need to know if you will be eligible for the First Home Loan Deposit Scheme…
- Are both you and your partner (if you plan to put them on the mortgage) first home buyers?
- As a couple, is your income $200,000 or less per year, or
As a single person, is your income $125,000 or less per year?
- Will you have saved 5% of the home value that you’re planning to buy?
If you’ve answered yes to these three questions, then you are eligible to apply for the scheme, according to information the government has put out to date.
What is the scheme and how much will it save you?
So basically, the First Home Loan Deposit Scheme, is the government guaranteeing your loan instead of you having to pay for mortgage insurance.
When you get a home loan, if you don’t have at least 20% of the value of the home you’d like to purchase, then you would need to pay for Lenders Mortgage Insurance (LMI). With the new government scheme, you’ll only need to save 5% of the value of the home you’d like to purchase and the government will guarantee the other 15%.
It will save you the cost of the LMI which could be approximately $10,000. Of course, if you already have a deposit of at least 20% of the value of the home you’d like to purchase, then you won’t need LMI or the government guarantee!
What are your chances of successfully getting the government guarantee?
The scheme will be available to up to 10,000 properties per year. That equates to around 10% of the first home loans in 2018-19. So many people will simply miss out.
Different regions will also have differing maximum loan size caps, to reflect the differing property markets across Australia and the details of these caps are yet to be provided.
So is it worth waiting for?
Simply put, if you struggle to get more than a 5% deposit together, then yes, this may help you.
But there is still 6 months that you will need to wait until it may be available and in that time many things can change:
- The property you really want may come onto the market and be sold
- Property prices in the area you are interested in, could go up more than $10,000 between now and then
- Lenders could tighten their policies around approval criteria
Considering that you may not even be one of the lucky 1 in 10 buyers that actually get the support, we’d suggest not relying on it.
There are still many lenders that will provide a 95% loan (up to 95% of the value of the property you wish to buy, plus the mortgage insurance on top of that). This isn’t the best financial decision for everyone as it can pose problems if property prices go down. But for certain people this is still a good option.
And of course, if you have, or can manage to save up over 20% deposit, you’ll be in a much better financial position – not needing the scheme – and also will save yourself tens of thousands of dollars in interest over the life of a 30-year loan.
Since this new scheme will be implemented as of 1 January 2020, you have plenty of time to explore all your options. Why not book in for our Free Planning Session to get you started? Contact us now on 0439 110 255 or (07) 55 245 220 and or email [email protected]. We look forward to cultivating your dreams