Are you a first home buyer in Australia? Saving a deposit isn’t easy, especially when you’re paying rent and other living expenses. 

But buying a house with a $20,000 deposit is possible through the recent government schemes in Victoria. Introducing the First Home Guarantee Scheme.

What are first home buyers entitled to in Victoria?

With the First Home Guarantee (FHG) scheme, first home buyers in Victoria can be entitled to:

  • No Lenders Mortgage Insurance (LMI) with less than 20% deposit 
  • No need to ask your family to be a guarantor 
  • Ability to buy a home with only a 5% deposit
  • Stamp duty removed or reduced

How does the FHG scheme work?

In past years only 10,000 spots were available at a time in the First Home Guarantee scheme, and they used to go pretty quickly. This year, the Federal Government released 35,000 and, with the quieter market, there are still some available. 

Plus, with fewer first home buyers entering the market this year, this might be your time to enter the property market.

What privileges do you get as a first home buyer?

Before the recent government incentives, at Loanscope we used to recommend at least a 10% deposit, plus fees. But this can be difficult if you are paying rent at the same time and are not a seasoned saver. 

Less than 20% deposit? Enjoy no Lenders Mortgage Insurance (LMI)

Most lenders allow a low deposit loan as long as you pay a one-time fee. This fee is called Lenders Mortgage Insurance (LMI) and it’s used as security for the lender – not the borrower. It’s a premium added to your house loan and it’s calculated based on your deposit. 

When buying a home with less than a 20% deposit on the property’s value, you would usually be expected to pay for Lenders Mortgage Insurance – generally a few extra thousand down the drain!

Depending on your case and the property you choose, as a first home owner you might be exempt from paying an LMI through the Federal Government. Discuss your options with your mortgage broker to find out if your loan can qualify. 

Buy a “home” with only a 5% deposit through the First Home Guarantee

Not many of us will buy the median property first up. The median property is the median house price, or the “middle home” (not on the low spectrum or the high one, but the middle one). 

Yes, you might not get a median property. But you might find:

  • a nice apartment
  • a townhouse in a less desirable suburb
  • a house with a very long commute to the city

Emmanuel from Loanscope remarks, “I have been helping people applying for first home buyer loans for the best part of 15 years. The media keep saying how hard it is to get your first property. Journalists who enjoy big headlines will tell you that it takes years to save the deposit required to save 20% and buy the median property in Melbourne.”

Alternative to the bank of Mum and Dad

If you have a 5% deposit, through the Victorian Government schemes, the government will contribute up to 25% of the purchase price – making them your guarantor. 

This eliminates the need of having parents with property on the hook as a guarantor. That will help some of us who haven’t got any relatives that can help. It’s a safe avenue and, unlike the Victorian Homebuyer Fund shared equity scheme, you still own 100% of the property.  

Stamp duty removed or reduced: Save $31,506 

If you’ve been wondering: “How do I avoid stamp duty in Victoria,” the answer is simple for a first home buyer. 

In Victoria, if you are a first home buyer you will not pay any stamp duty when you purchase a property up to $600,000

That means you will save the $31,070 that a non-first home buyer would donate to the local government at that price level. All you need to pay is the $1,506 transfer fee.

apartment building

How much deposit do I need to buy a $400,000 house?

Because through the First Home Guarantee you only need to save 5% of the purchase price, the deposit is easy to calculate. 

If the property you are buying is valued at $400,000, then 5% of the purchase price is $20,000. That means your loan is $380,000. Added to that are the transfer cost, the small cost of bank fees to set up the loan and conveyancing, which should be less than $2k all up on that $400k property. 

If you’re curious to check other property prices, check out our affordability calculator

Can I use my super for a house deposit?

Generally, no. But as a first home buyer, you could apply to the First home super saver (FHHS) scheme. This scheme allows you to make voluntary contributions to your super, which you can then withdraw to use as a house deposit. Contact your super fund or local mortgage broker to inquire about this. 

How much should I save a month to buy a house?

If you want to buy a house with a 20k deposit, consider the following scenario. 

As a solo buyer, if you earn $55-$60,000 a year (the average Australian wage), after tax, super, living expenses and average rent, you’d roughly be able to save $4000 a year.

So you’re looking at around 5 years to save $20k – if you don’t have any unforeseen expenses to cater to. 

Buying your first home with a $20k deposit 

While buying your first home is a big commitment, you don’t need to buy your dream home from the get-go at this price level. With the tight rental market and rent going up quickly, that could be a good outcome.

And it doesn’t have to be a life sentence – just a way to enter the market. Without these government incentives, between the 10% deposit and the stamp duty, you would need to save about $100k.

In a few years, as you pay it off – and with the market hopefully picking up – you will have a bigger deposit for the next one.

On the income side, as a couple, if you have no debt and pretty average living expenses, you only need to earn about $55k each per year gross to be able to afford that kind of loan.It isn’t easy, but certainly far from impossible. Contact us today and we’ll help you become homeowners this year.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Emmanuel Guignard (MBA)
Director & Principal Mortgage Broker
With over 15 years’ experience in the finance industry and a recently completed MBA in Financial Planning, Emmanuel leads the broking team at Loanscope. His experience includes working with a wide range of property investors, from first time buyers to investors with large property portfolios. This includes handling complex applications involving trusts, company structures and self-managed super funds. He also operates as a qualified mentor to other mortgage brokers via the FBBA mentor program.
Emmanuel Guignard