What is the First Home Guarantee & How Does It Work?

With the rising cost of living and housing affordability challenges, saving for a large deposit can take years of hard work and dedication. 

Previously known as the First Home Loan Deposit Scheme, The First Home Guarantee is an initiative designed to help eligible first home buyers enter the property market sooner, even if they don’t have the traditional 20% deposit.

In fact, in the 2023-24 financial year alone, 1 in 3 first-home buyers (around 43,800) used the Home Guarantee Scheme to secure their dream of homeownership! 

So, how does it work? Put simply, the government acts as your mortgage insurer, covering the gap between your 5% deposit and the standard 20% deposit that lenders usually require. This means the government guarantees the remaining 15%, reducing the lender's risk and also removing the need for you to pay costly Lenders Mortgage Insurance (LMI). 

By reducing the financial barrier of a large deposit, the scheme supports thousands of Australians to achieve their goal of buying their first home. However, you must meet eligibility criteria to qualify for the program, so it’s essential to check if you’re eligible before applying.

What Is A Guarantee?

When your home loan is covered by the First Home Guarantee (FHBG), Housing Australia provides a guarantee to the Participating Lender who issued your loan. It’s important to understand that this guarantee is not a cash payment or deposit for your home loan.

Instead, it’s a legal arrangement between Housing Australia and your lender, which ensures that if you default on your home loan, Housing Australia will cover, up to a certain amount, of what you owe. Simply, it offers security to the lender, not the borrower.

This guarantee covers a maximum of 15% of the property’s value. If your deposit is above 5%, the guarantee will be reduced accordingly.

However, it only comes into effect under very specific conditions.

• You have defaulted on your home loan.
• Your property has been sold.
• All sale proceeds and any other amounts available have been applied to reduce your debt.
• An outstanding amount remains that you still owe to the lender.

It’s crucial to remember that the guarantee does not:

• Help you make regular payments on your loan.
• Prevent you from defaulting on your loan.
• Stop your lender from taking action if you default on the loan.
• Cover any remaining debt you owe after the property is sold and the guarantee has been claimed.

Do I Only Need a 5% Deposit?

In terms of the deposit itself, yes—you can buy your first home with as little as a 5% deposit through the First Home Guarantee. However, it’s important to remember that there are additional costs involved in the home-buying process. While the 5% deposit covers the bulk of what you need to secure a home loan, you’ll still need to budget for other fees and expenses that arise along the way.

First-time buyers must have enough funds to cover costs like stamp duty, bank fees, legal fees, and government transfer fees. These fees are an essential part of the home-buying process, so planning for them in advance will help ensure a smoother, less stressful journey. There are State Government schemes that may provide stamp duty concessions for First Home Buyers, if you meet eligibility requirements.

Am I Eligible For The First Home Guarantee?

To qualify for the First Home Guarantee (FHBG), applicants must meet several eligibility requirements based on personal circumstances, loan conditions, and property criteria.

• Personal Circumstances: Your eligibility will be assessed based on factors like your income, prior property ownership, citizenship or permanent residency status, age, deposit amount, and your intention to live in the property you purchase.
• Participating Lenders: To take advantage of the FHBG, you must apply for your home loan through a Participating Lender who have agreed to adhere to the scheme's guidelines. 
• Eligible Loans: The type of home loan you apply for must qualify as an Eligible Loan under the scheme as well. 
• Eligible Properties: The property you intend to purchase must be classified as an Eligible Property. This generally means it should be a residential dwelling and not a commercial or investment property.
• Income Test: To qualify, singles must have a taxable income of less than $125,000, while couples should earn less than $200,000 for the previous financial year.
• Joint Applications: The scheme allows for joint applications, meaning any two eligible individuals—such as friends, siblings, or family members—can apply together, combining their financial resources.
• Prior Ownership: You must provide evidence that you have not owned or held an interest in property in Australia in the last ten years. This includes any form of property ownership, such as commercial or investment properties.
• Owner Occupied Requirement: You are required to move into the property within six months of purchase and live in it for as long as the home loan has a guarantee under the scheme. This ensures that the program supports genuine homeownership and not investment opportunities.

What Homes are Eligible?

Under the First Home Guarantee (FHBG), several types of properties are considered eligible for purchase. These include:

• Existing House, Townhouse, or Apartment: You can purchase a pre-existing residential property, whether it's a house, townhouse, or apartment. This option is great if you’re looking for a move-in-ready home.
• House and Land Package: If you're dreaming of building a brand-new home, you can choose a house and land package where both the land and the house are sold together as part of one contract.
• Land with a Separate Contract to Build: If you'd prefer to buy land and then build a home later, you can do that as well. This option allows you to purchase land first and then enter into a separate contract with a builder to construct your home.
• Off-the-Plan Apartment or Townhouse: You can also buy a property that is still under construction, such as an off-the-plan apartment or townhouse. This allows you to secure your future home at today’s prices, often before the building is even complete.

How To Apply

Applying for the First Home Guarantee (FHBG) is a relatively straightforward process, but it must be done through a Participating Lender or their authorised representative, such as a mortgage broker.

• Choose a Participating Lender or Broker: Start by selecting a Participating Lender or an accredited mortgage broker who can guide you through the process and help assess your eligibility for the scheme.
• Eligibility Assessment: The lender or broker will conduct a thorough assessment of your eligibility for the FHBG. This includes evaluating your personal circumstances, such as your income, prior property ownership, and credit history, as well as ensuring that your loan meets the criteria for the scheme.
• Reserve Your Slot: Once you begin the application process, your lender reserves a slot for you in the First Home Guarantee for a period of 14 days. Please note that this reservation cannot be extended, so it's important to act quickly.
• Submit Your Application: You must submit your application within the 14-day window. 
• Loan Pre-Approval: After your application is submitted, the lender will review it and provide pre-approval for your loan. Once you have pre-approval, you will have 90 days to return a signed and dated contract for the property you wish to purchase. If you're still searching for the right property, your lender may consider extensions for your property search.

Take the Leap into Homeownership

Buying your first home can feel overwhelming, but with initiatives like the First Home Guarantee, and a 5% deposit your dream may be closer than you think. 

If you’re ready to take the leap into homeownership or need help navigating your options, our expert mortgage brokers at Synergy Mortgage Brokers are here to help. With personalised guidance and a deep understanding of the First Home Guarantee, we can simplify the process and ensure you find the right solution for your needs. 

Contact us today to learn more about how we can assist you in securing your first home!