If you’re looking to purchase your first home, you’ll want to understand how the Home Guarantee Scheme works because it might just help you purchase your first home sooner than you thought possible.
We all know that saving 20% cash deposit to buy your first home isn’t easy, and often takes a bit of time.
According to recent data from CoreLogic, the average time it takes for a first home buyer to save a deposit is now 10.6 years.
The First Home Guarantee Scheme (HGS) can help you reduce that timeframe, by allowing you to buy your first home with only a 5% deposit.
Since the scheme was released in 2020, it has helped 200,000 first home buyers secure their first home.
Let’s take a closer look at how this initiative works to see if the First Home Guarantee Scheme can help you too.
What is the First Home Guarantee Scheme (HGS)?
The First Home Guarantee Scheme is a government initiative released to help first home buyers get into the property market sooner.
Typically when you’re looking to borrow more than 80% of a property’s value (i.e. you don’t have 20% deposit saved), a lender will add Lenders Mortgage Insurance (LMI) to your loan. They will often charge you a higher interest rate too.
But with a First Home Guarantee Scheme loan, instead of a lender adding mortgage insurance onto your loan, the government essentially guarantees a portion of your loan. This allows you to avoid the additional costs of LMI and get into the property market with a smaller deposit.
Are you eligible for the First Home Guarantee Scheme (HGS)?
To be eligible for the First Home Guarantee Scheme, you need to satisfy the following:
- You are an Australian citizen or permanent resident
- You’re at least 18 years old
- You’re purchasing a property to move into, as an owner occupier residence
- You are a first home buyer or a previous homeowner who hasn’t owned property in Australia for the past ten years
- You’re looking to purchase a property in the ACT for no more than $750K (each state has their own price cap – check your state here)
- You can demonstrate you have 5% deposit (some lenders have additional requirements around this)
- If you’re applying as a couple in the 2024/25 tax year, your combined Taxable Income for 2023/24 needs to be less than $200K. For a single applicant, your 2023/24 Taxable Income needs to be less than $125K
- This is evidenced by your ATO Notice of Assessment/s (NoA’s), which means you need to have lodged/finalised your Individual Tax Returns for the most recent tax year.
Even if you can satisfy the criteria above, you still need to be able to secure a spot in the scheme. Approved HGS lenders are allocated a number of places, which they then distribute to eligible borrowers throughout the year. Whether you can secure a spot or not will depend on the demand for HGS loans with approved lenders, at the time you wish to apply.
In addition to securing a HGS spot, you must also qualify for the loan itself. This means you must demonstrate you can meet the repayments on the proposed loan and satisfy credit policies of the specific lender you’re applying with.
What do I need to think about as we approach the end of the 2024/25 tax year?
From a HGS eligibility perspective, the income threshold outlined above applies to the previous tax year.
For example, if you want to a buy a property this financial year, your 2023/24 NoA’s will be used to determine if your income was under the threshold – regardless of what you’re currently earning this financial year.
So, if your salary has increased after July24 and you (or your household) is on track to earn more than the income threshold this financial year, you may want to purchase a property before the end of this financial year – if you’re keen to secure a spot in the HGS, that is.
How do you apply for the First Home Guarantee Scheme?
At the same time as lodging a pre-approval application, we would help you lodge an application to reserve a spot in the HGS. If everything goes to plan, once your pre-approval is issued, you’ll also receive confirmation that you’ve managed to reserve a HGS spot. Once these two milestones have occurred, you’re good to start house hunting!
To work out if the HGS might help you get into your first home sooner, give us a call on 02 6286 6501 or get started here.
