How First Home Guarantee can help first-time home buyers

Owning a home is a major milestone for many Australians but saving for a deposit can be challenging. If you have clients who want to fulfil their dream of homeownership, you might want to introduce them to the First Home Guarantee. It is a government initiative designed to help eligible first-time buyers enter the property market sooner. 

In this article, Mortgage Professional Australia will shed light on everything you need to know about the First Home Guarantee. We will talk about how it works, including its eligibility criteria and the application process. We will also provide you with some tips to share with your clients who want to leverage this government scheme. 

How does the First Home Guarantee scheme work? 

The First Home Guarantee is part of the Home Guarantee Scheme (HGS), which is administered by Housing Australia. It allows eligible first-time buyers to purchase a home with as little as a 5% deposit without having to pay Lenders Mortgage Insurance (LMI). 

Mortgage lenders usually require a 20% deposit to avoid LMI, which can add thousands of dollars to the cost of a loan. The First Home Guarantee helps reduce this financial burden by allowing the government to act as a guarantor for part of the loan. 

Learn more about this government initiative when you watch this clip: 

Innovative brokers can use their knowledge of the First Home Guarantee to attract more clients, particularly first-time home buyers. Use this and maybe one day, you’ll be one of the top 100 mortgage brokers in Australia. 

Who is eligible for the First Home Guarantee? 

To qualify for the First Home Guarantee, applicants must meet certain criteria, including: 

1. first-time buyer status 
2. citizenship 
3. income 
4. deposit 
5. owner-occupier 
6. property price 

Let’s take a closer look at each criterion below: 

1. First-time buyer status 

Your clients must not have owned or had an interest in a residential property in Australia before. Be sure that they are buying a home for the first time. 

Exception: Previous homeowners who haven’t owned property or land in Australia in the last ten years can apply. 

2. Citizenship 

Your clients must be Australian citizens or permanent residents. They need to be residing in the country at the time they enter the home loan. 

3. Income 

Your clients’ annual taxable income should not exceed $125,000 for individuals or $200,000 for joint applicants. This must be proven by showing the Notice of Assessment (issued by the Australian Taxation Office). 

4. Deposit 

They must have a minimum deposit of 5% of the property price but less than 20%. Other participating mortgage lenders can ask for a higher percentage deposit. This depends on individual financial circumstances. 

5. Owner-occupier 

The house should be your clients’ primary place of residence (not an investment property). This means that your clients are intending to reside in said property, not lease it. 

6. Property price 

Your clients’ chosen property must be within the price cap set for their location. Price caps vary depending on whether the property is in a capital city, regional area, or other parts of Australia. You can check the latest caps on the Housing Australia website. 

How many places are available? 

Each year, the Australian government allocates 35,000 places under the First Home Guarantee scheme. If all places are taken, your clients might need to wait until the next financial year to apply. 

Benefits of First Home Guarantee 

There are several benefits to using First Home Guarantee, these include: 

• Lower deposit requirement: Your clients can buy a home with just 5% deposit, making homeownership more accessible 

• No LMI: LMI can cost thousands of dollars. But with the FHG, the government acts as a guarantor. This eliminates this extra cost 

• Faster option to homeownership: Saving for a 20% deposit can take years. With just 5%, your clients can enter the housing market sooner 

• Available for new and existing homes: Unlike some grants, the First Home Guarantee applies to both newly built and existing properties 

Risks of using the First Home Guarantee 

While the First Home Guarantee offers many benefits, there are some risks to consider: 

• Higher loan repayments: Borrowing with a lower deposit means your clients’ monthly repayments will be higher compared to those with a 20% deposit 

• Potential for negative equity: If property prices fall, your clients might end up owing more than their home is worth 

• Limited availability: The government caps the number of First Home Guarantee places each financial year. If demand is high, your clients might need to wait for a new allocation 

Now that you know the benefits and risks, you can provide better advice to your clients. Watch this video to know if the First Home Guarantee is worth it: 

Explore the pros and cons of the First Home Guarantee scheme further when you read this article. 

How to apply for the First Home Guarantee 

Once your clients meet the eligibility criteria above, they can apply for the First Home Guarantee. Guide them by sharing these steps: 

1. save for down payment 
2. choose a participating mortgage lender 
3. get mortgage pre-approval 
4. find a home within the price cap 
5. finalise their home loan 

Let’s discuss each step one by one: 

1. Save for down payment 

Your clients must have at least 5% of the property price saved as a down payment. The lower their deposit, the higher their mortgage repayments. 

2. Choose a participating mortgage lender 

The First Home Guarantee is available through select lending companies. Your clients must apply for a home loan with one of these participating mortgage lenders. They will assess your clients’ eligibility and submit your clients’ application for the First Home Guarantee through their authorised representative. 

Here are the six major bank lenders that offer this government scheme: 

• Commonwealth Bank of Australia (CBA) 
• National Australia Bank (NAB) 
• Westpac Banking Corporation 
• BankSA 
• Bank of Melbourne 
• St.George Bank 

3. Get mortgage pre-approval 

Before your clients begin looking for property, advise them to get pre-approval from your lender. This will give them a clear idea of how much they can borrow. 

4. Find a home within the price cap 

Tell your clients to look for property within the First Home Guarantee price limits for their area. They have the option to either buy a new or existing home as long as it is their intended primary residence. 

5. Finalise their home loan 

Once your clients find a suitable property, their chosen participating lender will guide them through the home loan application process. If approved, the government guarantee will be applied to your clients’ mortgage. Then, they can proceed with the purchase and settlement. 

Can you combine the First Home Guarantee with other grants? 

Short answer: yes. The First Home Guarantee can be used in combination with other government grants and schemes, such as: 

• First Home Owner Grant (FHOG): A one-time grant is available in some states for first-time home buyers purchasing or building a new home 

• Stamp duty concessions: Many states offer reductions or exemptions on stamp duty for first-time home buyers 

• First Home Super Saver Scheme (FHSSS): Allows first-time home buyers to use superannuation savings to boost their home deposit 

Combining these schemes can help reduce upfront costs. This can lessen the financial burden of your clients further. 

Tips for first-time buyers 

Here are some tips that you might want to share with your clients if they plan to apply for the First Home Guarantee to buy property: 

Understanding their borrowing capacity 

When assisting clients with the First Home Guarantee, it’s important to assess their borrowing capacity early in the process. This figure reflects how much a mortgage lender is willing to offer based on your clients' income and expenses. 

To calculate borrowing capacity, review your client’s financial history. This includes: 

• income sources 
• existing debts 
• ongoing expenses 

Understanding your clients’ borrowing capacity helps set realistic expectations. You can help them focus on properties within their budget and prevent financial overcommitment. It also ensures that they meet the requirements when applying for a home loan under the First Home Guarantee. 

Being mindful of hidden costs 

When supporting clients with the First Home Guarantee, remind them that while the scheme waives the LMI and reduces the required deposit, additional costs still apply. These can include: 

• mortgage application fees 
• property inspection charges 
• legal service fees 
• council rates 

Encouraging clients to budget for these expenses can help prevent financial strain after settlement. 

Staying updated on scheme changes 

Government schemes like the First Home Guarantee can change every year. As such, staying updated about these changes is necessary for providing expert advice to your clients. 

Regularly check the Housing Australia website or stay in contact with participating mortgage lenders. You can also go to our market updates pages to see the latest news in the market. 

Helping first-time homebuyers with First Home Guarantee 

The First Home Guarantee is a valuable government initiative that focuses on helping first-time home buyers in Australia. It allows them to enter the property market with a smaller deposit and no LMI costs. With lower upfront costs, more Australians can achieve their homeownership goals without the usual barriers. 

By understanding how it works and more, you can decide whether this scheme is the right choice for your clients. Exploring this government scheme can help you better support your clients in their journey towards buying their first home. 

Did you find this guide in First Home Guarantee helpful? Feel free to share your thoughts in the comments section below.