Percentage game

Would-be first home buyers need not despair if they are struggling to raise a 20% deposit

- DARREN SNYDER

The first home loan deposit scheme is an exciting boost for first home buyers, allowing them to buy a property with a 5% deposit and without lenders mortgage insurance (LMI).

Instead of LMI, the federal government will guarantee 15% of the home loan. In other words, the government is taking on the lender’s risk that you don’t pay off the loan.

According to Deslie Taylor, mortgage broker and principal at Mortgage Choice Ormeau, the scheme is saving first home buyers up to $15,000 off their upfront costs. It means these same buyers don’t have to immediately come up with thousands of dollars for LMI after already saving for a deposit.

Let’s say you had a 5% deposit on a $475,000 home, totaling $23,750. Add the cost to buy (solicitor fees, building and pest inspection costs and other charges) and you could easily spend another $5000. Then if you paid your LMI as a lump sum of $15,000, you would be looking at $43,750 upfront and almost double your original deposit.

Arguably if you can afford that final figure (with some wriggle room) you could form a stronger deposit on the same or another home and lessen the LMI; and similarly, if you bargain down the price of your property it can reduce the LMI. But it’s not really the point of the government’s offer, and Taylor says that in the $475,000 example – if you qualified for the scheme – you’d only have to come up with $28,750 upfront for the deposit and buying costs.

You can learn more about how the first home loan deposit scheme (FHLDS) works and how to apply at the National Housing Finance and Investment Corporation (NHFIC) website.

Don’t qualify? Don’t fear