How to buy with a 5% deposit

Are you ready to turn your homeownership dreams into reality? The First Home Guarantee Scheme is a government initiative designed to assist eligible buyers enter the property market faster and with reduced stress.

This Scheme enables you to purchase a property with a deposit as low as 5%. Effectively, the Government acts as a guarantor for the loan, eliminating the need for lenders mortgage insurance (which is typically required when the deposit is less than 20%).

It is important to note that the Guarantee provided under the FHBG is not a cash payment or deposit for a home loan. Instead, it serves as security for the bank, replacing the requirement for a higher deposit.

Now, let’s delve into the details:

1. Financial Flexibility:
The Scheme offers a significant advantage by allowing you to enter the property market sooner with a smaller deposit. Accumulating a substantial sum can be a challenge for many aspiring homeowners. However, with the Scheme’s flexibility, you can contribute a deposit as low as 5%, enabling you to allocate your savings strategically and expedite your journey towards homeownership.

2. Elimination of Lenders Mortgage Insurance:
Lenders Mortgage Insurance (LMI) can be a burdensome expense for borrowers with deposits below 20%. As an eligible homebuyer, you can bid farewell to this cost entirely. Say goodbye to those additional thousands of dollars and embrace a more attainable dream of owning your own property.

3. Increased Property Market Accessibility:
Rising property prices can be disheartening, making it challenging to save up for a sizable deposit in today’s market. By reducing the deposit requirement and eliminating the need for LMI, this scheme opens up new opportunities to dive into the property market more swiftly.

4. Eligibility Criteria:
Let’s address the fine print. To take advantage of the FHBG, you must meet specific eligibility criteria. This includes being an Australian citizen or permanent resident, at least 18 years old, and intending to utilise the property as your primary residence. Ensure you visit the NHFIC website or consult with your mortgage broker to obtain comprehensive information on the requirements and application process.

5. Participating Lenders:
The Scheme operates in collaboration with a network of Participating Lenders who have partnered with the Government to offer this opportunity. They provide a range of home loan products tailored to the needs of first-time buyers. Conduct thorough research, connect with these Participating Lenders, and explore the available options. Alternatively, enlist the assistance of a mortgage broker who can handle the legwork for you.

6. Consider the drawbacks:
Purchasing a property with a lower deposit entails a higher mortgage, resulting in increased mortgage repayments and interest costs over the loan’s lifespan. Additionally, you may have limited options for refinancing in the future. It is crucial to understand these limitations before committing.

To conclude, while buying a property with a smaller deposit does have its drawbacks, it also presents an opportunity to enter the market sooner.