Buying your first home is a major life decision, especially in today’s competitive market. But being a first-time buyer can have its advantages if you qualify for Australian governmental schemes and grants such as the First Home Guarantee (FHG or FHBG) scheme. 

First home buyer 5% deposit scheme explained

What is the First Home Guarantee, how does it work and who can make the most out of it? Data by NAB – one of the major lenders in the FHG scheme – reveals that 63% of people that purchased a house under the scheme were single buyers, with a median age of 25-29 years old (NHFIC). So if you’re young and/or single, the FHG helps even the property-ownership playing field. 

What is the First Home Guarantee?

Part of the Home Guarantee Scheme, – formerly known as the First Home Loan Deposit Scheme (FHLDS) and also referred to as the New Home Guarantee (NHG) – FHG is an Australian Government initiative that supports eligible first home buyers purchase property quicker.  

Under the FHG, only residential properties are eligible for a first home buyer loan. Those include:

  • an existing house or existing/off-the-plan townhouse or apartment
  • a house and land package
  • land with a separate home-building contract  

How does the First Home Guarantee (FHG) scheme work?

Generally, to buy a property with a 5% deposit and no lenders mortgage insurance (LMI) you need a guarantor loan. Usually, a guarantor is a close family member that uses a part of their equity (usually a home/property) to secure the loan, allowing you to borrow up to 95% of the value of the first home. 

This scheme works in the same way but, in this case, the guarantor for the loan is the Australian Government – more specifically, the National Housing Finance and Investment Corporation (NHFIC). The Federal Government acts as a guarantor for up to 15% of your home loan, with LMI waived for first home buyers, saving them thousands of dollars in LMI fees.

What are the advantages of the First Home Guarantee scheme?

The three main advantages of the FHG mortgage scheme are:

  1. You can get a mortgage with a 5% deposit 
  2. You don’t need to pay any LMI, saving thousands on fees
  3. Younger and single buyers get on the property ladder sooner

Traditionally, to buy a home, you needed to save a minimum of 20% deposit to avoid paying LMI. According to CoreLogic’s Housing Affordability Report 2022, it takes 11.5 years for a first home buyer to save a 20% deposit. That’s $147,795 for an average-priced home.

“Assumes monthly repayments on a 30-year term, 20% deposit and current median Australian dwelling value.” Source: CoreLogic

You no longer have to save a 20% deposit to buy a new home. The FHG scheme gives first home buyers a major advantage, by helping them escape the deposit hurdle, and move into their own home much sooner. This also means they cut back on years they would have been stuck paying rent – effectively paying someone else’s mortgage (check out the renting vs buying cost calculator). 

Are you eligible for the First Home Guarantee (formerly FHLDS) scheme?

To apply for the FHG, you must meet certain income, citizenship and property ownership criteria. From 1 July 2022 – 30 June 2023, 35,000 scheme spots are available to eligible buyers. 

Who is eligible for this first-time buyer scheme?

  • Individual applicants with earnings up to $125,000 per year; and couples with combined earnings of up to $200,000 
  • Applicants need to be Australian citizens and at least 18 years of age
  • A genuine first home buyer, with no formerly owned property in Australia
  • The applicants are intending to be owner-occupiers of the property
  • The applicants need to have at least a 5% deposit saved

How to apply for the First Home Guarantee?

First Home Guarantee applications should be submitted directly to participating lenders or through a mortgage adviser. A mortgage broker can talk you through your options, answer your questions, prepare your application and liaise with the lender throughout the process. This makes it much easier for you to apply for a loan within this scheme.

Start saving and buy your dream home

With the rising cost of living, saving for a deposit (even a 5% one) is more challenging than before – especially since wage growth is slower. 

To prioritise saving for your first home and reach your 5% deposit goal quicker (to be one of the 35,000 successful applicants for the FHG), there are a few saving tricks you can employ: 

  • Make savings a habit. Set up automatic recurring saving deposits into your investment account
  • Cut your travel expenses. Use public transportation more often, or even better, start riding your bike more
  • Cut rent costs. Move out of the city, move back home with your parents or move into a share house
  • Be money-savvy. Find high-interest accounts and if you invest, make sure you diversify your investments
  • Borrow money from your family or friends

In a case study by NAB, a first home buyer was able to save the 5% deposit for a Sydney villa unit in 1 year and a half. By utilising some (or all) of the saving tactics above, you can too!

How to enjoy the first home buyer 5% deposit scheme today

So are you ready to become a first home buyer? You might already have the 5% needed in savings, without having realised it. If you do and you’re ready to purchase, you shouldn’t wait – those 35,000 spots will be gone before you know it. In such an uncertain market, it’s essential that you have all the information you need, as quickly as possible. 

But should first home buyers wait before purchasing a property? You might have the deposit, but are you able to afford the loan repayments? An experienced mortgage broker can advise you and help you make the right decision – timely. 

Contact us today for a free, during or after-hours consultation, and we’ll walk you through your First Home Guarantee options in Victoria. 

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.

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