The First Home Loan Deposit Scheme allows first home buyers with deposits as low as 5% to get a home loan without paying Lenders Mortgage Insurance (LMI) fees.
Based on average purchase prices in the capital cities, first home buyers can save anywhere between $10,000 and $40,000 in LMI fees with this scheme.
This $500 million scheme is slated to come into effect by January 2020 and will be given out on a first come first serve basis.
There are several eligibility criteria first home buyers must meet in order to qualify for the first home loan deposit scheme:
The full details and eligibility criteria are yet to be announced but we do know that the scheme is modelled after New Zealand’s own first home buyers scheme called the Welcome Home Loan which has been in effect since 2003.
Finding the deposit for your first home can be a real struggle, with most lenders currently requiring a minimum 20% deposit to avoid LMI.
It can take nine to ten years for an average household to save that deposit.
With this scheme, if you’ve saved up at least 5% of the property value the government will essentially guarantee up to 15% so you can avoid the cost of LMI and enter the property market sooner.
So, instead of having to insure your home loan with a lenders mortgage insurer and paying a hefty fee, the government will guarantee any shortfall in your deposit and basically act as the mortgage insurer for your home loan.
The government will guarantee the deposits through the National Housing Finance and Investment Corporation (NHFIC) who have already started consulting with industry leaders and will contract a panel of lenders to implement the scheme.
Your actual savings in LMI will be based on your deposit, the loan to value ratio (LVR) and your home loan amount.
Think of it this way, the lower your deposit is, the higher the risk is to the bank leading to higher LMI premiums.
For example, a first home buyer looking to buy in Sydney where the median price is $830,000 as of April 2019 with a 5% deposit, can save anywhere between $32,000 and $36,000 approximately in LMI depending on the lender’s mortgage insurer.
However, if you were to put up a 10% deposit, the LMI range goes down significantly between $17,000-$18,600.
Similarly, in Melbourne, where the median price is $660,000 as of April 2019 with a 5% deposit, you’re saving anywhere between $28,000 and $31,700 approximately in LMI.
You can use our LMI calculator to work out exactly how much you’re saving.
To implement the scheme, the National Housing Finance and Investment Corporation (NHFIC) will contract a panel of lenders instead of dealing directly with borrowers.
As such, lenders or mortgage brokers will assess scheme eligibility alongside other standard home loan considerations such as serviceability.
The full details are yet to be announced. We’ll keep you updated.
Once the borrower is approved for the scheme, the government guarantee lasts until the borrower refinances or the outstanding home loan balance falls below 80 per cent of the property purchase price — whichever comes first.
Ideally, you should only refinance when you have less than 80% owing on your home loan to avoid paying LMI fees.
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