The government’s new First Home Loan Deposit Scheme will guarantee mortgages for first home buyers who have only saved a 5% deposit, effectively helping them buy sooner without paying lenders mortgage insurance premiums.
5% deposit home loans already exist, but you generally need to pay LMI when borrowing more than 80% of a property’s value. LMI can be expensive, if you bought a $400,000 property with a 5% deposit ($20,000) you’d be looking at a $12,768 LMI premium. The First Home Loan Deposit Scheme removes this cost, so you’re saving money and also time. You can save a 5% deposit in a quarter of the time it would take to save 20%, after all.
To be eligible for the scheme you must be purchasing a property valued at or below the following thresholds for NSW:
Capital city/Regional Centre
e.g. Sydney, Newcastle, Wollongong
$700,000 or less
Rest of State
e.g. Kurri Kurri, Maitland, Cessnock
$450,000 or less
So for example, if you were to purchase a home in Kurri Kurri at the current median price of $350,000, you would need to have a 5% deposit saved of $17,500. The government will then provide $52,500 to give you the full 20% deposit of $70,000 so you avoid paying Lenders Mortgage Insurance.
First Home Loan Deposit Scheme Explained:
• If you’ve saved 5% of the purchase price of your property the government will guarantee the remaining 15% of the deposit
• You still need to borrow 95%, but you can avoid LMI
• Your mortgage needs to be an owner-occupied loan with principal-and-interest repayments
• Eligible first home buyers can’t be earning more than $125,000 a year ($200,000 combined for couples)
• Access to the scheme is limited to 10,000 borrowers
• The value of eligible homes under the scheme varies by state and city/region (see above)
• The scheme starts on 1 January 2020