What Is The First Home Loan Deposit Scheme?

Over the last couple of years, the Australian Government have made it a priority to help everyday Australians purchase a home to live in. It’s no secret that saving up for a house deposit is a challenging task. Let’s look at Melbourne (as an example).

With a median house price of $930,000, you would be required to save $186,000 if you were to pay a 20% deposit. Even a 10% deposit is just under $100,000. This is excluding any purchase costs such as stamp duty, transfer fees etc. For those in their 20’s or early 30’s, this can seem like a daunting figure to strive for.

Help is here!

Therefore, the Australian Government introduced the First Home Loan Deposit Scheme (FHLDS) to help first home buyers enter the property market with as a little as a 5% deposit (without the need to take out Lenders Mortgage Insurance):

· The Commonwealth Government guarantees the difference between what the eligible first home buyer has saved, and the 20% deposit threshold lenders usually require before they’ll provide a home loan without Lenders Mortgage Insurance

· For instance, if you have $45,000 to put towards a $500,000 home, the government will step in and guarantee the first $55,000 of your loan so that it brings your security up to $100,000 (Note, your loan would still be $455,000. The benefit comes from not having to pay LMI).

· You can use the FHLDS in conjunction with other government grants, schemes, concessions, and waivers. E.g. stamp duty concessions that you qualify for in your state or territory

· Borrowers are required to show evidence of ‘genuine saving’s to prove your ability to save and therefore repay your home loan

· Both newly built and established properties qualify for the scheme

What is ‘genuine savings’ and why is it important?

· Lenders want to see you’ve planned for and saved for a deposit yourself, as this shows that you’re likely to be a good borrower

· Lenders typically ask for a minimum of 5% of the purchase price, therefore the rest of your deposit can come from alternate sources.

· For example, if you were buying a $500,000 home, you’d need $25,000 in genuine savings as a deposit.

 Can you use your ‘rental ledger’ as genuine savings?

· If you can prove a strong rental history, some lenders will make an exception to their normal genuine savings policy and may consider other deposit sources such as a gift from your parents

· For example, National Australia Bank are happy to classify your rental history repayments as genuine savings. If you have paid $500 a week in rent for the last year (equating to $26,000), they will classify this as ‘genuine savings’

· Therefore, the actual deposit for your home loan can come from other sources i.e. a gift, sales of an asset, tax refunds, employment bonuses, inheritance etc

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