In this post, I’ll show you EXACTLY how to buy a home with 5% deposit, without paying LMI.
In fact, this is the same process I’ve used to help 100+ first-home buyers get into the market in 2023.
So, if you want to stop renting and jump onto the property ladder in 2023 you’ll love this new guide.
Table of Contents
What Is the Home Guarantee Scheme?
The First Home Guarantee, once called the First Home Loan Deposit Scheme allows home buyers to get into the market with as little as a 5% deposit.
There are three main benefits to the scheme:
- You can enter the market more quickly with a lower deposit
- You can avoid paying Lenders Mortgage Insurance (LMI)
- You gain access to lower interest rates usually reserved for buyers with a bigger deposit.
There are a couple of limitations, though:
- You need to be living in the property
- It’s not available for investment properties
- There are property price caps
- The scheme is limited to 35,000 spot per financial year
So you can miss out on this scheme if you don’t apply quickly enough.
Home Guarantee Scheme Expanded Eligibility in 2023
The Home Guarantee Scheme has undergone some changes that could open the door for many more Australians to dive into the property market. Starting from 1 July 2023:
- Whether you’re friends, siblings, or other family members, you can now team up and apply for both the First Home Guarantee and the Regional First Home Buyer Guarantee
- Even if you’ve owned a property before but it’s been at least 10 years since you’re back in the game and can apply!
- Single legal guardians of kids, including aunts, uncles, and grandparents, are now eligible for the Family Home Guarantee.
- Good news for our permanent residents – you can apply for any of the three schemes: First Home Guarantee, Regional First Home Guarantee, and Family Home Guarantee.
How does the scheme work?
The government acts as your guarantor, allowing you to buy a home without the need to pay thousands of dollars in lenders’ mortgage insurance.
Ordinarily, you’d need to have at least 20% deposit to avoid paying lenders mortgage insurance, which is a one-off insurance added to the loan but with the scheme you avoid the LMI fees as the government provides a guarantee of up to 15% of the value of your home.
The scheme has been designed for lower to middle-income earners, so there are income caps of a maximum taxable income of $125k if you are a single person applying, or $200k if you are a couple buying together.
Through the pre-approval process, we can help you apply for the home guarantee scheme from a participating lender.
Your home loan and Home Guarantee Scheme Application will still be subject to regular home loan considerations like borrowing capacity, credit checks, and suitable employment.
There are a limited number of spots released in the scheme every financial year, released on a first-come, first-served basis.
Hunter Galloway is an accredited Mortgage Broker, we can help you reserve your place in the Home Guarantee Scheme through our pre-approval loan process.
Step-by-Step Guide for the First Home Guarantee Scheme
As you can see, the Home Guarantee Scheme has many benefits. You need to make sure you are eligible for the scheme, and get ready to take advantage of the limited number of spots.
To help you do that, here is my step-by-step guide.
1. Confirm Your Eligibility for the Home Guarantee Scheme
The eligibility criteria for the scheme are below. If you unsure if you qualify, get in touch with our team and we can guide you through your eligibility.
|Income||Single applicants: up to $125,000 taxable income for FY23 |
Couples: up to $200,000 taxable income for FY23
|Deposit||At least 5% savings, up to a maximum of 20% savings|
|First Home Buyer||You must not have owned property in Australia in the past 10 years.|
|Citizenship||Australian citizens and Australian permanent residents are eligible.|
|Property Price Cap||Price caps apply; see below|
|Minimum Age||Yes, aged 18 years and older|
|Living Arrangement||You must move in and live in the property as your home within 6 months. If you move out of the home you are no longer covered by the scheme.|
|Relationship||Friends, siblings, and other groups of family members can jointly apply.|
|Banks||Only 27 lenders can offer the scheme, the major banks include CBA and NAB and some non-major lenders include Bendigo Bank, Bank Australia & Teachers Mutual Bank.|
2. Check to see if you are buying an eligible property type
The following property types are eligible for the First Home Guarantee Scheme:
- An existing house, townhouse or apartment
- A house and land package
- A vacant land together with a separate contract to build a home
- An off-the-plan apartment or townhouse
Once you’ve been pre-approved for a home loan by one of the participating lenders, you’ll have 90 days to find and sign a contract of sale for an eligible property that you want to buy.
Finally, once you’ve signed a contract of sale, you’ll have an additional 30 days from the signing date to finalise the paperwork and checks for your home loan.
3. Confirm the maximum purchase price in your area
The home guarantee price limits vary depending on the state or territory and whether you’re looking to buy in a city, large regional centre or other regional area.
|Area||Current Price Cap||OLD Price Cap 1st July 2021 to 30 June 2022|
|New South Wales—capital city and regional centre||$900,000||$800,000|
|New South Wales—other||$750,000||$600,000|
|Victoria—capital city and regional centre||$800,000||$700,000|
|Queensland—capital city and regional centre||$700,000||$600,000|
|Western Australia—capital city||$600,000||$500,000|
|South Australia—capital city||$600,000||$500,000|
|Australian Capital Territory||$750,000||$500,000|
|Jervis Bay Territory and Norfolk Island||$550,000||$550,000|
|Christmas Island and Cocos (Keeling) Islands||$400,000||$400,000|
What determines the higher price caps?
Throughout the country, some regional centres are allocated higher price caps. This means that the buyers can purchase at a higher price and still be eligible for the deposit scheme. The population of the region determines this.
The government outlines that regional centres with over 250,000 people like the Gold Coast, Geelong and Newcastle will have a higher price cap.
4. Collate the Documents Required to Apply for the Home Guarantee Scheme
You’ll need to submit the following information to your mortgage broker or to a participating lender.
- Your full name and date of birth;
- Your Medicare number (including your position on the card);
- Your Notice of Assessment (NOA) for your taxable income. For reservations made from 1 July 2023 to 30 June 2024, the relevant NOA is for the 2022-2023 financial year.
- Other standard home loan documents.
5. Determine Which Scheme You are Applying for
Aside from there being more spots available, there were also a number of name changes to the scheme from 1 July 2022.
Name from 1 July 2022
Acronym from 1 July 2022
Updates from 1 July 2022
First Home Loan Deposit Scheme (FHLDS)
First Home Guarantee
New name and 35,000 new Scheme places are being released in FY23
Family Home Guarantee
5,000 new Scheme places are being released in FY23
New Home Guarantee
No longer available, this is part of the First Home Guarantee scheme.
6. Speak with a Mortgage Broker to Reserve Your Spot
To apply for the First Home Guarantee, you can choose to apply directly with a lender or get help from a mortgage broker.
Important: The NHFIC does not accept direct applications. You will need to work with a lender or a broker to confirm your eligibility for the scheme.
The advantage of working with a broker is that we can find you the best loan for your specific needs. Working with a specific lender will limit your options.
We can now reserve a spot for you in the First Home Guarantee. The spot is subject to availability and can be held for up to 14 calendar days. This period cannot be extended.
You must submit your application within these 14 days. If it meets the requirements, we can move on to obtaining a certified guarantee.
What happens if all of the spots in the First Home Guarantee are taken?
If all of the spots in the First Home Guarantee scheme are filled, we can put you on a waiting list. If a spot opens up in the Scheme, we will notify you.
How will my Home Guarantee loan be assessed?
Borrowers will be assessed by their income, loan amount and previous history when it comes to buying a house. For your loan to be eligible, you will need to fit the criteria, including:
- A loan is eligible if the Loan to Value (LVR) ratio is between 80 to 95%
- The value of the property doesn’t exceed the price cap for the area.
- You are applying with one of the 32 lenders that can offer the scheme (detailed below).
- Two borrowers applying must both be eligible as first home buyers.
- The loan is for a residential property.
- There is a maximum of two borrowers applying, no more.
- The residential property subject to the loan must be owner-occupied.
- The loan term does not exceed 30 years.
First Home Guarantee FAQs
The First Home Guarantee works with other government initiatives. You can combine it with grants or schemes if you qualify.
If you break the rules of the First Home Guarantee, you might face penalties or lose the guarantee. This could make you responsible for any costs the guarantee would have paid for. To avoid negative consequences, it’s important to understand and follow all the terms and conditions.
The First Home Guarantee is special because it helps first-time home buyers with a smaller deposit and no mortgage insurance. Other programs provide money or tax benefits, but the First Home Guarantee focuses on making it easier to buy a house.
Usually, the First Home Guarantee doesn’t punish you for paying off your loan early. But your loan terms with the lender might. Make sure to read your loan agreement for any fees or penalties for early repayment.
The FHBG does not guarantee:
- Helping you make missed payments on your home loan
- Preventing you from defaulting on your home loan
- Stopping the lender from taking action against you for defaulting on your home loan or mortgage
- Covering any remaining amounts owed to the lender after the sale of the property or claiming the guarantee.
If you do face financial difficulties in the future, you should contact your lender to see what options are available to you.
No. Participating lenders won’t charge eligible first-home buyers a higher interest rate. If you’re successful, you’ll get the same interest rates as mortgages outside this scheme.
The guaranteed home loans have standard terms, conditions, and consumer laws.
If you can’t make payments, contact your lender/bank right away. Don’t wait until you default. There may be options if you reach out early.
If you apply under the First Home Guarantee, you will have access to better interest rates. A mortgage broker can help you get a good interest rate for your home loan. They do this by making a pricing request for you.
This is a standard part of our application process at Hunter Galloway, and we’ll do the same for you.
You and your spouse both need to be Australian citizens or permanent residents. You would not be eligible for the scheme if your spouse is on a partner visa.
No. Owner-builder contracts are not eligible for the scheme.
No. The First Home Guarantee is only available to borrowers who enter into a contract of sale as an individual under their own name.
Purchasing as a trust or company is not allowed.
No. The First Home Guarantee is for residential properties only.
Yes, all participating lenders follow the same eligibility for the scheme.
However, each lender has their own specific lending criteria that you must meet to qualify for a loan.
That’s why we recommend working with a broker to secure your spot in the scheme: we can find you the best loan across all of the lenders.
The guarantee will last until:
- You sell your property
- You move out of your home
- You refinance your home loan, or;
- Your loan-to-value ratio falls below 80% of the purchase price.
You can keep the guarantee if you move your guaranteed loan between two participating lenders. If you do this, you can’t increase the loan amount or term of the loan, and the loan should remain an eligible loan as defined in the scheme rules.
Your eligibility for the Home Guarantee itself isn’t affected by your credit score. However, you will still need to pass the credit scoring of the participating lenders.
If you have a low credit score, there are some participating lenders who will still approve your loan.
Speak with a broker to find out which lender is best suited for your circumstances.
A de facto relationship is defined as:
- Not legally married to each other;
- Not related by family; and
- Have a relationship as a couple living together on a genuine domestic basis.
There’s no requirement to show proof of a de facto relationship outside of the First Home Buyer Statutory Declaration form that you need to sign.
Yes, but only if your spouse has not owned a property within the past 10 years. If either of you have owned or held an interest in property in the past 10 years, you will not be eligible.
You can sell your home any time that you want. However, your home loan will cease to be guaranteed under the scheme and you will no longer be eligible.
If you move out and rent your property, you will no longer be covered by the guarantee.
Your guarantee will expire when you sell your property.
If you apply for a loan backed by the First Home Guarantee, your lender will let you know if you got a spot. From there, you will have 14 days to get pre-approved with your lender.
It depends on the type of property you’re buying.
If you’re buying an existing home, you must sign a contract on or after January 1, 2020.
For an off-the-plan purchase, you must sign the contract before your loan settles. The settlement date must be within 90 days of your loan being guaranteed.
Yes. If you still meet the requirements, you can reapply for the scheme at a later date.
No. The First Home Guarantee is not a cash payment. It is just a guarantee.
You will know your application is moving forward when:
- Your lender tells you they saved your spot for 14 days.
- You got pre-approved (with conditions) for a home loan.
- You read the guide and filled out the First Home Buyer Declaration form (one for each borrower).
You can’t change the loan term for loans guaranteed under First Home Guarantee.
To alter your loan terms, you would need to refinance the home loan.
During the guarantee period, you can make limited changes like splitting or fixing the loan.
Rate changes are possible if you meet still meet the eligibility criteria (you’re not switching to an investment loan or an interest-only loan).
Yes, Lenders will still have specific restrictions on property locations.
For some postcodes, they may limit the LVR to less than 80%. In these cases, LMI doesn’t apply and the property won’t be eligible.
Not all lenders have location restrictions. If one lender rejects your property, others may accept it.
If the bank valuation is higher than the property threshold, you will not be eligible for the scheme – even if the contract of sale value is below the threshold.
If you’d like help with applying for your Home Guarantee Scheme and securing a home, leave a quick message here and our Mortgage Brokers will be in touch within 4 business hours.