First home buyers are edging closer to securing support from the federal government to be the guarantor for the Lenders Mortgage Insurance (LMI) component where the first home buyer contributes 5% deposit.
The government has invited lenders to provide feedback on the scheme as legislation to implement the First Home Loan Deposit Scheme is incorporated into the National Housing Finance and Investment Act 2018.
Essentially, the government wants to make sure the lenders are on board and that all elements are considered. The government is keen for all lenders to be involved in the scheme, not just the big 4, to ensure first-home-buyers have the opportunity to secure a 95% home loan with the most competitive interest rate.
First in, best dressed
With only 10,000 guarantees issued each year across the whole of Australia, first-home-buyers need to get their house in order (so to speak…) early to ensure they have a chance of securing their place in the scheme.
The government will place a limit on each state and territory but there is no guarantee the 10,000 places will be shared equally across the country. We might see more guarantees granted to states that need a boost in property purchases, whereas states like New South Wales and Victoria may receive less places due to the high demand.
Consideration will also be given to the median house prices in both capital cities and regional areas and which states already offer first-home-buyer grants and stamp duty concessions.
How will first-home-buyers be assessed for the First Home Loan Deposit Scheme?
The government is slowly starting to release information about how each application will be assessed. The amendments to the scheme will include income tests for first-home-buyers and also a limit on property purchase prices.
Essentially, if a first-home-buyer is going to borrow 95% of the property value, the government and lenders need to ensure that the borrowers have the income to support the repayments. They will also consider how the first-home-buyer accumulated the 5% deposit. It’s likely that a proven savings history to accumulate the 5% deposit will be seen more favourably than say a gift from mum and dad.
How to prepare for applying for the First Home Loan Deposit Scheme
If someone is going to be the guarantor on what essentially is a loan, they want to make sure the person they are backing displays a strong financial capacity. Here are our tips to help you prepare;
Display a regular savings history for your 5% deposit. This means a regular savings pattern in your bank account. Setting up a sub-account in your transactional account and automated transfers is a great way to start, no matter how small the amount. It’s unlikely that the government will approve an application for a first-home-buyer who has no history of savings and received their 5% deposit as a gift or payout of some kind.
Keep credit to a minimum. Reduce your credit card limit and pay it in full and on time each month. Don’t take on any other credit facilities like buy-now, pay-later (eg AfterPay). Whilst seemingly small payments, these are seen as debt and this will reduce your borrowing capacity.
Ditch the gambling. Gambling transactions on your bank statement (eg. Ladbrokes, SportsBet, TAB, Bet365) are a big no-no when it comes to borrowing money from a bank. Because the nature of regular gambling is an unknown limit, the banks see this as a major problem. So kick that habit now if you’re planning on buying a property. Lenders will want to see your last 3 months bank statements, so now is the time to ditch the gambling.
Keep stable employment and income. Unfortunately, casual income is a little too casual for banks to lend on, so the ideal is to have permanent employment and a regular salary coming in each month. That said, regular contract work with the same employer will also be considered. Keep in mind that a lot of lenders only take the base salary for their calculations and bonuses and overtime payments might not be considered in full. If you have a variable income, have a chat to Mint Equity to find out how your income will be assessed by the lenders.
Consider buying property in other regions that have a lower property price. The government will set limits on the house prices for the scheme, so take the time now to look around at other locations that might suit a smaller budget.
Find out your borrowing capacity. Speaking with a mortgage broker like Mint Equity now to find out your borrowing capacity will help you prepare for next year’s application. We can calculate your borrowing capacity based on your income and also help guide you with a savings plan to save the 5% deposit.
Buying your first property can be daunting, but the team at Mint Equity have all the information to make it a stress free process. From legal fees to stamp duty concessions and bank jargon, we’ll guide you through the process, free of charge!