First Home Loan Deposit Scheme: The Ultimate Guide

Owning a home is the ultimate realisation of the great Australian Dream. But in the 2017-2018 period, it was revealed that only around 66 percent of Australian households owned their home. This means that about 34 percent of households in Australia have yet to purchase their own residence. With the end goal of enabling people to own a home, the Australian government introduced the First Home Loan Deposit Scheme (FHLDS), which took effect on 1 January 2020.

The FHLDS programme enables low and middle income earners who are first home buyers to buy a house with only a 5 percent minimum deposit. With a smaller deposit, it’s much easier to purchase a home. Traditionally, mortgage lenders expect a 20 percent deposit for a home loan or, you have to pay lender’s mortgage insurance, which in itself can cost thousands of dollars, adding to the overall costs of buying a home.

Understandably, a lot of people have been looking forward to the implementation of the FHLDS as the steady increase in inflation has made it difficult for people without a high income to save for a home deposit. Initially, the FHLDS aims to process up to 10,000 home loans every financial year beginning January 2020.

So if you’ve been putting off buying your own home due to financial constraints, the FHLDS can be the opportunity you’ve been waiting for to realise your dream of owning a home. 

However, just as you need to allocate time for planning a home purchase, you also need to be familiar with the requirements, mechanics and obligations that come with the FHLDS. This is why we put together this handy guide. It’s designed to help you navigate the FHLDS scheme so you can benefit from it.

FHLDS eligibility criteria and information

As with any government programme, there are certain criteria FHLDS applicants need to meet in order to qualify. The FHLDS eligibility criteria are as follows:

• You are an Australian citizen with your own Medicare card.
• You are at least 18 years of age.
• You are a first home buyer with no history of residential property ownership, whether separately or jointly.
• If you are single, you have a taxable income of up to $125,000 per year.
• If you are part of a couple, you need to have a combined taxable income of up to $200,000 per year.
• If you are applying as a couple, you must either be married or in a de facto relationship.
• You need to have a prepared deposit of between 5 percent and 20 percent of the value of the property.
• Your maximum allowed property purchase price depends on the suburb and postcode of your prospective property.
• The FHLDS programme only encompasses owner-occupied home loans paid on a principal and interest basis.

To determine if you are potentially eligible for the FHLDS scheme, visit the National Housing Finance and Investment Corporation (NHFIC) website.

Financial institutions offering the service

Of the various banking institutions in the country, the only major bank lenders that started accepting FHLDS applications on 1 January 2020 were the National Australia Bank and Commonwealth Bank.

Non-major lenders that began processing FHLDS applications on 1 February 2020 are as follows:

• Australian Military Bank
• Auswide Bank
• Bank Australia
• Bank First
• Bank of us
• Bendigo Bank
• Beyond Bank Australia
• Community First Credit Union
• CUA
• Defence Bank
• Gateway Bank
• G&C Mutual Bank
• Indigenous Business Australia
• Mortgageport
• MyState Bank
• People’s Choice Credit Union
• Police Bank (including the Border Bank and Bank of Heritage Isle)
• P&N Bank
• QBANK
• Queensland Country Credit Union
• Regional Australia Bank
• Sydney Mutual Bank and Endeavour Mutual Bank
• Teachers Mutual Bank Limited (this includes UniBank, the Health Professionals Bank, Teachers Mutual Bank and, Firefighters Mutual Bank)
• The Mutual Bank
• WAW Credit Union

FHLDS application process

First-time home buyers looking to avail of the scheme need to get in touch with a home lending specialist to check if they are eligible and find out if slots are available. This is because hundreds of people are lining up for the programme, with 65 percent of the 10,000 quota spots taken during the first month of its implementation. The overwhelming response to the scheme has prompted the government to open a further 10,000 slots this coming July.

A home lending specialist will help facilitate your registration. All you need to do is to set an appointment online, via a phone call or by personally visiting your prospective lender. To guide you further, remember the following steps:

• Go to the NHFIC website to check your eligibility.
• Set an appointment with your preferred participating home lending services provider.
• The home lending specialist will guide you in the documentation process and submit your paperwork for you.
• The home lending specialist will send a request to reserve a slot in the FHLDS scheme on your behalf and update you on the progress of your application. Do note that spots are limited and may not be immediately available unless another applicant decides to not push through with their application.
• Once you qualify and are approved for the scheme, you are required to purchase your home within 90 days of approval.
• You can now move in to your own property.

Advantages and disadvantages of the FHLDS scheme for borrowers

As with any home loan scheme, the FHLDS comes with advantages and disadvantages.

One major advantage of the FHLDS scheme is that you can avail of it along with the First Home Super Saver Scheme. This means that you can use your voluntary superannuation contributions for your property deposit.

For example, if you’ve been making voluntary super contributions of up to $15,000 every financial year, you can access that money and use it to pay the 5 percent deposit required in the programme. If you are single, you can withdraw $30,000 maximum, whereas couples can withdraw $60,000 maximum. This is a major benefit since approved FHLDS applicants don’t need to personally spend money, borrow or withdraw from their savings to make a deposit as they’ll be taking it out of their super contributions.

Second, with a deposit of between 5 percent and 20 percent of the purchase price, you won’t have to pay lender’s mortgage insurance (LMI). This can save you thousands on your overall borrowing costs. 

However, there are also downsides to applying for the FHLDS scheme if you do not properly plan for the financial obligations that come with it. Make sure you take note of the following:

• With a smaller deposit, you’re essentially taking on more debt. This means your mortgage repayment amounts will be much higher than they would be if you had a larger deposit for the same property. It’s important to make sure you’re financially stable enough to handle your repayments.
• With a larger loan, you may decide to use the longest possible loan term in order to make your repayments more affordable. Make sure you’ll be comfortable making mortgage repayments 25 to 30 years from now
• Putting down a smaller deposit means you can end up paying more in total interest during the loan tenure.

Also, in the event that you find yourself substantially increasing your earnings, making a decision to pay off the loan before it reaches maturity can mean penalties and other fees for advance payment. This depends on your loan. 

Property types you can buy with the FHLDS guarantee

According to the NHFIC, the types of residential property approved FHLDS applicants can purchase include the following:

• House and land package
• Off-the-plan apartment or townhouse
• Existing house, townhouse, duplex or apartment
• Property on an ‘eligible building contract’
• Land together with a separate home building contract

There are price limits set for home purchases and they vary by state and region. The price caps set for residential property in the FHLDS scheme are as follows:

Australian Capital Territory: $500,000

Northern Territory: $375,000

New South Wales

• Sydney, Newcastle, Lake Macquarie, Wollongong/Illawarra: $700,000
• Other states: $450,000

Queensland

• Brisbane, Gold Coast, Sunshine Coast: $475,000
• Other states: $400,000

South Australia

• Adelaide: $400,000
• Other states: $250,000

Tasmania

• Hobart: $400,000
• Other states: $300,000

Victoria

• Melbourne, Geelong: $600,000
• Other states: $375,000

Western Australia

• Perth: $400,000
• Other states: $300,000

FHLDS FAQs

We put together this list of frequently asked questions about the FHLDS scheme to ensure you have all the necessary information as you decide on your next step.

1. Will FHLDS first home buyers be subject to higher interest rates?

According to the NHFIC, participating FHLDS lenders will not charge approved borrowers higher interest rates than those who are not participating in the scheme.

2. After approval, will I receive a cash payment?

No, the guarantee you’ll get is not a cash payment nor is it a deposit for your home loan.

3. How much will the First Home Loan Deposit Scheme cost me?

The scheme guarantee does not come with any costs or fees. But you need to know your obligations with regard to costs relating to your loan and repayments associated with the FHLDS guarantee.

4. If I miss out on this opportunity the first time, can I still reapply?

In case your initial application is unsuccessful, you can always reapply, as long as there are available guarantees. As is usual, you need to meet FHLDS application criteria and requirements. To be eligible for the scheme, you also need to satisfy the financial requirements and the property you want should be eligible.

5. What’s the duration of the scheme guarantee’s effectivity?

The FHLDS guarantee stands until the loan is completely refinanced, you move out or sell your home, or until such time that the loan principal balance is set below 80 percent of the property value.  

6. If I’m an Australian permanent resident, am I eligible?

No. Only Australian citizens are eligible to apply for the FHLDS scheme. Couples applying for the scheme also need to both be Australian citizens and first home buyers.

7. What if my partner is ineligible for the scheme but I am, will I still get the guarantee?

As long as you fit the FHLDS eligibility criteria, as well as the requirements set by a participating lender as an individual applicant, you may be given a guarantee as an individual home buyer.

8. Can I apply as a single applicant and as part of a couple?

This is not allowed. You need to decide prior to getting your lender to make a reservation for you if you’ll be applying as a single individual, or as part of a married or de facto couple.

9. Does the FHLDS have a waiting list for places covered by it?

There is no waiting list maintained for places under the FHLDS scheme. Also, applications cannot be lodged directly with the NHFIC. All applications need to be coursed through participating lenders.

10. Is it possible to apply with more than one lender?

You can apply through more than one participating lender, but you can only have one place in the FHLDS scheme.

11. Are applicants allowed to use brokers?

Yes. Borrowers who are eligible can get a guaranteed loan from a registered mortgage broker, as long as the broker has a partnership or relationship with the participating lender you are using.

12. I read that I need to make a minimum deposit of 5 percent from my genuine savings. What does this mean?

In general terms, genuine savings are savings you have accumulated or kept over a period of time. But this can only be established by your lender for the purpose of using the scheme.

13. What information or documents do I need to provide my lender during the application process?

For your lender to be able to reserve a place for you under the FHLDS scheme, you need to provide them with the following items:

• Complete legal name as it should appear on the property title
• Date of birth
• Notice of Assessment (for the 2018-2019 income year) issued by the Australian Taxation Office

To ensure your application goes smoothly, you need to prepare the above items and present them during your initial meeting with your lender. Also, be prepared to provide other details and documents that your lender might request for the purpose of meeting their lending requirements.

14. Do I need to reapply if my scheme place reservation expires?

Yes. You need to reapply to secure another scheme place with a participating lender. Also, you can only reapply if there is a scheme place available when your lender submits your application.

15. Is the eligibility criteria for the FHLDS the same for all participating lenders?

Yes, definitely. But lenders will have different lending criteria.

The FHLDS scheme is the federal government’s programme designed to help eligible applicants buy their first home. If you have more questions, please reach out to participating lenders and get your questions answered.