Homeownership. It’s the dream many of us share—that little piece of Australia to call our own.
Yet, let’s face it, the journey there can be as daunting as it is exciting. Amidst a high cost of living and soaring housing prices, the goalposts move when we’re about to kick the ball.
You might even stumble upon an amazing opportunity in the market, but the lack of a sizable deposit could leave you feeling like you’re missing out on the deal of a lifetime.
Fortunately, there are ways to overcome this hurdle.
While some may consider turning to family members for help, other sources of assistance exist. The Australian Government has recognised the struggle of aspiring homeowners and has introduced guarantee schemes to lend a helping hand.
These schemes can provide a much-needed boost and help you take the plunge into homeownership without the burden of a substantial deposit.
Here’s what you need to know:
Understanding Guarantees
When you set out to buy a home, lenders usually require a 20% deposit of the property’s purchase price. This hefty sum is a security for the lender and minimises their risk.
However, if you’re unable to afford this 20%, some lenders may still offer you a loan with a smaller deposit, but this usually comes with the added cost of lenders’ mortgage insurance (LMI).
LMI is a type of insurance that protects the lender (not you, the borrower) against the potential risk of you defaulting on your loan. While it allows you to get into the property market sooner, it does come with an extra cost.
This is where a home loan guarantee comes in handy.
A guarantee is a promise made by a third party—the guarantor—to the lender that they will cover the outstanding loan balance should you, the borrower, default on them. Most people are familiar with family members acting as guarantors, but the Australian government offers a scheme where you can apply to have them act as guarantors on up to 15% of a loan.
The Benefits of a Home Guarantee Scheme
There are several benefits to participating in guarantee schemes:
- Your required deposit is reduced to as little as 5%, making it easier to enter the housing market sooner.
- You do not need to pay LMI, which can save you significant money.
- Banks are more likely to approve your loan, as the government guarantee minimises their risk.
Types of Guarantees
Let’s look into the various Australian Government initiative schemes so you can establish which might be the best fit for your circumstances.
First Home Guarantee
The First Home Guarantee is a key part of the Home Guarantee Scheme. This initiative helps eligible first-time home buyers purchase a residential property sooner with as little as a 5% deposit.
Through the National Housing Finance and Investment Corporation (NHFIC), the Australian Government acts as a guarantor on up to 15% of the loan. This means you can secure your dream home without paying lenders’ mortgage insurance.
Family Home Guarantee
The Family Home Guarantee is designed to allow single-parent families to purchase a home or re-enter the property market. Like the First Home Guarantee, this scheme also enables you to buy a home with a deposit of as little as 2% without paying lenders’ mortgage insurance.
To be eligible, you must be a single parent with at least one dependent child and satisfy the income and property price requirements.
And as of July 2023, the Family Home Guarantee scheme will extend to those who are single legal guardians of at least one dependent.
Regional First Home Buyer Guarantee
The Regional First Home Buyer Guarantee offers targeted support to eligible first-time homebuyers seeking to purchase a property in regional Australia.
This guarantee aims to help you secure a home in less populated areas, benefiting both you and the regional community by supporting local economic growth. Like the other schemes, you can purchase a home with as little as a 5% deposit without paying lenders’ mortgage insurance.
Eligible First Home Buyers
You must meet specific eligibility requirements to apply for the Home Guarantee Scheme in Australia. These requirements vary depending on the type of guarantee you are applying for:
First Home Guarantee | Family Home Guarantee | Regional First Home Buyer Guarantee | |
Minimum Deposit Required | 5% | 2% | 5% |
Number of places | 35,000 | 5,000 | 10,000 |
Purchasing History | First-time home buyers | First-time home buyers or previous owners | First-time home buyers |
Property Type | New and existing properties | New and existing properties | New and existing properties |
Borrower Eligibility | You must be an Australian citizen, aged 18 or over, with an income of up to $125,000 for individuals or $200,000 for couples. Eligible home buyers should intend to use the purchased property for owner-occupation. | Single parents or legal guardians with at least one dependent child, who are Australian citizens and over 18, earning less than $125,000 annually, are eligible. Eligible single parents and legal guardians should intend to use the purchased property for owner-occupation | Eligibility for certain home guarantee schemes requires applicants to be Australian citizens, aged 18 or over, with an income limit of $125,000 for individuals or $200,000 for couples. They must intend to live in the purchased property. At least one borrower must have lived in the same or adjacent region for the previous 12 months. |
Property price cap | Dependent on the state or territory. See the price cap table. | Dependent on the state or territory. See the price cap table. | Dependent on the state or territory. See the price cap table. |
Additional Support: Alternative Government Home-Buying Schemes
Beyond the guarantee schemes, the federal and state governments offer various other support schemes and grants to help first-time home buyers enter the property market.
First Home Owner Grant
As a first-time homebuyer in Australia, you can benefit from the First Home Owner Grant. This national scheme provides a one-time payment to eligible first-time homeowners.
The grant amount and eligibility criteria differ in each state and territory.
Here are some key points you should know:
- The grant will help you enter the housing market and boost new home construction.
- Depending on your state or territory, you can receive anywhere between $7,000 and $20,000.
- The home must be new or substantially renovated, and you must live in it as your principal residence.
First Home Super Saver Scheme
Another support available for first-time homebuyers is the First Home Super Saver Scheme, which helps you accelerate your savings by allowing tax concessions when you save for a deposit using your super fund.
This scheme offers the following advantages:
- You can make voluntary contributions to your super account and withdraw them, along with the associated earnings, as a deposit for your first home.
- The contribution limit is $15,000 per financial year and $30,000 annually.
- These contributions are taxed at a concessional rate so that you can save more money than outside super.
When considering the First Home Super Saver Scheme, ensure you are well-versed with the scheme’s terms and eligibility criteria and the consequences of withdrawing from your super.
Key Takeaways
Buying a home is one of the most significant financial decisions you will make, so if you need help, it’s available to you:
- The government offers various schemes to help you guarantee your home loan. These schemes reduce the deposit required, negate the need for lender mortgage insurance, and increase your chances of loan approval.
- The First Home Guarantee, Family Home Guarantee, and Regional First Home Buyer Guarantee are different schemes designed to suit other circumstances, but they all aim to make homeownership more attainable.
- Alongside these schemes, the First Home Owner Grant and the First Home Super Saver Scheme provide additional support for first-time home buyers.
And if you need help accessing these schemes, The Mortgage Agency can guide you through the process, ensuring you make the best choices for your circumstances.
Ready to explore your options and take the first step towards your dream home?
Book your free discovery session with The Mortgage Agency today.
