The First Home Loan Deposit Scheme (FHLDS) came into effect on January 1 2020, allowing eligible buyers to purchase a home with as little as a 5 per cent deposit.
The scheme has already been popular, with 3000 of the 10,000 loan guarantees already reserved on day one of the scheme becoming available, according to Domain data.
But the FHLDS certainly isn’t for everyone. If you miss out on the first round of the scheme, or find that you aren’t eligible, you still have a lot of options for breaking into the property market.
Keep saving
While it may sound appealing to be able to jump in the property market with a meager 5 per cent deposit, the reality is that the bigger a deposit you have saved, the better off you could be in the long run.
Ideally you should be aiming for about a 20 per cent deposit to avoid paying Lenders’ Mortgage Insurance (LMI), but another reason to pay more is because you won’t need to borrow as much from your lender.
The more you need to borrow, the more interest you will need to pay, and it may put you in a tight financial situation.
So unless you are especially eager to jump into the property market you might be best waiting until you can save up a little more first.
Pay for LMI
If you only have a 5 per cent deposit for a home you may still be able to take out a loan without being approved for the FHLDS, however you will need to pay LMI.
This is a one-off fee applied to a home loan to protect the lender in case there is a default in payments.
LMI can cost thousands of dollars, but every lender has different requirements so you will need to check with your to find out what your obligations might be.
Take advantage of other first home buyer incentives
If you’re a first home buyer then you may be able to take advantage of a state government grant or a stamp duty exemption to help you get into the market sooner.
Grants and stamp duty exemptions vary from state to state so visit www.firsthome.gov.au to find out what you could be eligible for.
Keep in mind however that most incentives are available to first home buyers purchasing a new property.
If you’re interested in finding out more about the First Home Loan Deposit Scheme visit www.nhfic.gov.au/what-we-do/fhlds/.
