Effective July 1, 2023, the Australian Government will grant wider latitude for its constituents to realise their lifelong dream. Following a change in legislation, particularly amendments to the National Housing Finance and Investment Corporation (NHFIC) Act and NHFIC Investment Mandate, more eligible homebuyers will now have the chance to apply for a housing loan and purchase their own property.
What is a first home guarantee?
The First Home Guarantee (FHG) is an Australian Government Initiative that supports eligible home buyers in their first home purchase. As part of the Home Guarantee Scheme (HGS), HFG allows Australian citizens to buy their home with only a deposit as low as 5%, without paying for Lenders Mortgage Insurance.
It aims to enable people to own their first property while there is a dropping trend in housing prices across the capital cities. Each financial year since 2019, the year when the government first introduced the act – then referred to as ‘First Home Loan Deposit Scheme’, the number of places available for the guarantee increased from 10,000 to 35,000.
For eligible borrowers, the First Home Guarantee can be used in conjunction with other government programs like the First Home Super Saver Scheme and first homeowner grants available per state and territory.
Am I eligible for a first home guarantee?
There are several criteria to meet to determine if you qualify for the guarantee:
- Individual or as a couple (whether married or de facto)
- Holds an Australian citizenship status at the time of application
- At least 18 years old
- For individuals, must have an annual income of $125,000/ For couples, must have a combined annual income of $200,000 (The Australian Tax Office issues the Notice of Assessment that confirms the above figures)
- Must be a first time home buyer/owner
- Applicant must own and occupy the purchased property (Not intending to sell or lease)
What other factors should I consider before applying?
Apart from the usual eligibility requirements, you should also look into factors like the following:
- PROPERTY TYPES
While the favoured property type is residential, you can explore other property types that may be covered by the guarantee like an existing house, townhouse, or apartment. You can also be approved for a house and land package or just land but with a contract to build a new home on it. The condition is for you to occupy and live in said property, which means they can’t be used for commercial and investment purposes.
- PRICE LIMITS
For the loan to be granted, the value of the residential property must be market-aligned with the price caps set by the state government. In New South Wales, where properties are most expensive, the cap is set at $900,000, while the more affordable regions like Tasmania set its limit at $450,000.
Buyers should be mindful as a house-and-land package typically costs more and can go beyond maximum price caps. The risk of getting your application rejected is higher. As such, buyers who intend to buy land and have construction contracts to build the home must not get caught out in the variations that contracts have. The cost can vary and balloon depending on your choice of inclusions.
If you want to know more about price limits, go to Property Price Caps to compare prices per capital city and regional centre, as well as the rest of the state.
- LOAN REQUIREMENTS
Loans made under First Home Guarantee require scheduled payments of both principal amount plus interest for the full period of the agreement. For construction lending, you can explore the possibility and terms of interest-only loans.
Because this is essentially a mortgage, you must think about how long a commitment it is, especially how it impacts your financial situation in the next several years. Consider the mortgage size that best works with the debt level you are comfortable managing. Are you prepared to make regular long-term repayments? Do not discount the fact that mortgage stress is an issue millions of Australians suffer today.
- DEPOSIT SIZE
Through this scheme, you can place a minimum deposit as low as 5% of the total value of the property. The maximum allowable deposit is at 20%. For single parents with children, you can apply for the lowest deposit size of 2%.
To save time and energy, you can visit NHFIC’s Eligibility Checker to be aware of other qualifying factors. The questionnaire allows you to check the full list of criteria.
Furthermore, it is advisable to check with a Participating Lender to give you more information and confidence to apply and secure the loan based on your situation. Presently, NHFIC authorises 32 participating lenders to offer the guarantee, including Commonwealth Bank, Auswide Bank, Police Bank! Bank Australia and many others.