How to Buy Your First Home with a Small Deposit

The beginning of July 2021 was an excellent start for single parents and first home buyers. If you have been trying to save money for your first house, you are in luck this year. You do not have to wait any longer because you can purchase your home even with a low deposit.

The Australian Federal Government announced that the First Home Loan Deposit Scheme is extended. The program is under the New Home Guarantee scheme, giving first home buyers a chance to pay for a new house by providing a five per cent deposit.

In line with the current program, a new scheme was recently proclaimed as part of the 2021-22 budget. This new program is called the Family Home Guarantee and is designed to help families buy a new home quicker.

A Look at the Three Schemes

First, let us talk about the New Home Guarantee, which was announced in the 2020-21 Federal Budget. According to the Australian Government, 10,000 more spots were opened, allowing even more eligible first home buyers to either purchase or build a new home. In the 2021-22 Federal Budget, 10,000 slots were added further, starting from 1 July 2021.

We have talked about the First Home Loan Deposit Scheme (FHLDS) here in Quantum Finance. FHLDS is an initiative created to provide support to eligible Australians who were buying a house for the first time. The scheme applies to those building their first house, as well. Without the program, first home buyers must provide a 20% deposit to reserve the property they want to buy. The buyer with less than the needed deposit will have to pay Lenders Mortgage Insurance (LMI).

Because of the existence of the FHLDS, new home buyers only need as little as a five per cent deposit. This figure will go towards the price of the house that they would like to buy or build. And thanks to the First Home Loan Deposit Scheme, first home buyers do not need to pay the LMI.

Now, what about the Family Home Guarantee? It’s a new program, which is a part of the 2021-22 Federal Budget. The main goal of the scheme is to help single parents who may not have enough funds to purchase a new home. Instead of providing a 20% deposit or paying for the LMI, single parents can buy an existing house or build a new one by providing as little as a two per cent deposit. Additionally, there is no need to pay for the LMI.

A significant benefit of the Family Home Guarantee is that it does not require the single parent to be a first home buyer. That means that if you are a single mother or father, you can purchase or build a house with a two per cent deposit even if you have owned a property previously.

Are You Eligible for the Programs?

The requirements for the Family Home Guarantee and First Home Loan Deposit Scheme are quite straightforward. You can use this Government-created tool to check your eligibility if you are single. Meanwhile, if you are a couple looking to purchase or build your new home, you can use this tool instead.

To sum it up, you will need to meet the following conditions:

• You and your spouse or de facto partner (if purchasing or building as a couple) should be Australian citizens
• You’re both 18 years of age or older
• You and your partner have never owned a residential property
• You wish to purchase a property as an individual
• The property you would like to own is in Australia
• The property will only be used as a principal place of resident
• Your taxable income is $125,000 ($200,000 combined total for couples) or below for the previous financial year

Remember that there are strict definitions for the term “residential property.” It does not just mean an owner-occupied home. Therefore, if you purchased or owned an investment property or company title property in the past, you will no longer be eligible.

If your partner whom you have recently separated from, for instance, purchased a house, you cannot benefit from the scheme, as well.

Single parents, however, can be eligible for the Family Home Guarantee program even if they already purchased or built a house before. The requirements are as follows:

• You need to have at least one dependent child
• You should be single, which means you’re not married or in a domestic partnership
• You do not own a lease of land in the country
• You do not hold a company title interest in land in any part of Australia
• You do not have a freehold interest in any Australian real property

You can purchase or build a residential property like with the First Home Loan Deposit Scheme. Therefore, you cannot own a property and turn it into an investment. Eligible properties include townhouses, apartments, and an existing house. You can also purchase a house and land package or land with a separate agreement that lets you build a home on the space. Both schemes allow the purchase of an off-the-plan townhouse or apartment.

Take note of the property price caps, which vary from one state to another. It should also be mentioned that the Family Home Guarantee does not cover Jervis Bay Territory and Norfolk Island, as well as single parents in Cocos Islands and Christmas Island.

If you are in Western Australia, the property price threshold for Perth is $500,000 and $400,000 for the rest of the state. New South Wales has the biggest threshold, which is $800,000 for Sydney and $600,000 for the rest of the state. Moreover, NSW first home buyers still have until August to take advantage of the increased price caps for waived stamp duty. This incentive is offered on both vacant land and new builds.

As for the rest of South Australia, the state has the smallest price cap at $350,000. However, Adelaide has the same threshold as Perth and Hobart in Tasmania.

For more information on property price caps, you can use this tool which lets you find what you’re looking for by providing the specific location.

How Can You Buy a Home Sooner?

Suppose you are eligible for the First Home Loan Deposit Scheme or the Family Home Guarantee. In that case, you can proceed to apply for a home loan application. The National Australia Bank (NAB) and Commonwealth Bank are the major banks that accept loan applications under the schemes. The financial institutions have confirmed that they have helped almost 13,000 first home buyers during the previous rounds of the program.

The increase in the price capping on eligible properties can encourage more buyers to grab this excellent opportunity. It’s a way for Australians who are new to the property market to purchase the home of their dreams. It is always easier if you have a professional helping you out every step of the way. Quantum Finance can help you own your first home, guiding you to the right home loan that suits your needs. Find out how we can assist you by reaching out to us today.