The federal government introduced the First Home Loan Deposit Scheme (FHLDS) on 1 January 2020 to help buyers land their first home sooner.
Lenders saw record breaking numbers of applications when it was introduced.
But what makes it different to the other schemes currently available for first home buyers?
How does the First Home Loan Deposit Scheme work and why was it introduced?
The FHLDS helps first home buyers by providing a guarantor and reducing the amount needed for the deposit. In contrast to schemes such as the First Home Owner Grant offered by states and territories which can help reduce some of the upfront costs of buying a home, such as stamp duty.
Currently, there are only 10,000 FHLDS spots available per financial year. Successful applicants of the scheme will be able to purchase their first home with as little as a five per cent deposit.
They will have their loan guaranteed with a participating lender by the National Housing Finance and Investment Corporation (NHFIC), removing the need for Lenders Mortgage Insurance (LMI).
The NHFIC provides this guarantee on the difference between the deposit amount and the 20 per cent threshold lenders need before requiring LMI.
The three elements of eligibility
The eligibility requirements of the FHLDS can make you feel like you need to jump through many hoops just to get your foot in the door. To make it easier to understand, we have broken down the three elements of the FHLDS here.
1. The buyer
There are several requirements that must be met to be eligible for the FHLDS.
The scheme is open to both singles and couples that meet the criteria. A couple must be a spouse or a de facto partner, and both members must be named as borrowers on the loan.
You won’t be eligible if you apply for the FHLDS with a partner that isn’t your spouse or de facto, such as a friend or family member. This includes a group of three people where two members are an eligible couple.
Once you have been deemed as an eligible single or couple, you will need to meet several other key tests, including:
- Income test: Singles taxable income must not be more than $125,000 while the limit for couples is $200,000
- Prior property ownership test: To be eligible, you must not have ever owned a freehold interest in real property in Australia, an interest in a lease of land in Australia with a term of fifty years or more, or a company title interest in Australian land
- Minimum age test: You must be 18 years of age or over
- Deposit requirement: You must have the minimum deposit as required by your lender under the scheme
- Owner-occupier requirement: Investment properties aren’t supported under the scheme. You must move into the property within six months and live in the property for so long as the home has a guarantee under the scheme.
2. The property
Not every property is eligible for the FHLDS. There are a few factors that are considered when deciding whether a property is eligible.
Firstly, the property must be purchased by an eligible buyer, as mentioned above, and be classified as a residential property under the scheme’s definition.
When it comes to the settlement date of your home loan, you also need to be the sole registered owner(s) of the property to be eligible.
The property must also have a purchase price under the price cap for its location. Each state and territory have their own price cap for their city and regional centres and ‘rest of state’ areas.
The price of the property isn’t the only thing you must consider when ensuring the home you are searching for meets the schemes eligibility requirements. The scheme only allows the property to be either:
- An established dwelling, or
- A new-build dwelling that’s purchased under a house and land package, a land and separate contract to build a home, or an ‘off-the-plan’ arrangement that is financed under an eligible loan from a participating lender.
3. The loan
Once it’s established that you meet the buyer criteria, and the property you’re purchasing is eligible, you must also ensure you are applying for an eligible loan with a participating lender.
The scheme requires the loan to:
- Be secured by a registered first ranking mortgage over the eligible property
- Have no other registered owners at the time of settlement
- Have 100 per cent of the loan drawdown proceeds used for the purchase or construction of the eligible property
- Have a loan amount commitment no less than 80 per cent and not more than 95 per cent of the relevant value of the property
- Have a term of 30 years or less
- Require regular principal and interest loan repayments
- Allow for no changes to loan terms, such as increased limit.
Preparing your application
With only limited FHLDS spots available, it’s key that you put your best foot forward when applying.
Once you have your genuine savings together and an idea of where you want to buy, you need to do your research on the scheme to tailor your application. Identify the properties that will be eligible and have all the documentation ready and cross-checked.
You need to make sure your chosen lender is participating in the scheme. You can also apply through a registered mortgage broker that holds a relationship with the lender.
Applying for the First Home Loan Deposit Scheme with the First Home Owners Grant
The FHLDS is separate to the First Home Owners Grant (FHOG). The FHOG is a national scheme managed by each state and territory government that discounts the payable stamp duty for first home buyers.
Each scheme aims to help first home buyers and you can apply for both in conjunction with each other.
Are you able to make the property an investment for a limited time?
There are several reasons why someone may make their home an investment property, such as moving for work, travelling overseas or simply buying a new home and wanting to rent out their current one.
If you move away for an extended period and rent out the home, your loan may no longer be guaranteed under the scheme.
However, if the move is temporary and you don’t rent the home, you should still be guaranteed. We recommend having a discussion with your lender before any move.
Your questions, answered: