You may have heard that, as of July 1st 2021, Family Home Guarantees are now available for buyers to purchase a property with as little as a 2% deposit. But who is eligible, how can this guarantee be used and what are the benefits?
What is the Family Home Guarantee?
The Family Home Guarantee is a new program from the Australian Government which provides eligible single parents with dependents the chance to build a new home or purchase an existing home with a deposit of 2%, subject to the individual’s ability to service the loan.
These guarantees will only be available to 10,000 individuals over the next four financial years and are only available to single parents with dependents who meet certain criteria.
Who is eligible for the Family Home Guarantee?
- Only single parents with at least one dependent child
- Applicants must have an income of less than $125,000 as declared in their FY21 (ending 30 June 2021) income tax return
- Applicants must be Australian citizens aged 18 or over
- Applicants must not currently own a home (however there are no restrictions on prior homeownership)
- The property purchased must be occupied by the borrower and must be their primary place of residence
- The scheme can be used for both new builds or existing properties under specific price caps
- Contracts must be dated on or after July 1st 2021, except land contracts which may be dated at any time
- Loans taken out through the scheme cannot be longer than 30 years
- Borrowers must have a genuine deposit between 2-20% and be able to service their loan
What are the benefits of the Family Home Guarantee?
It’s no secret that saving to buy a home is hard work. The cost of living is high and the deposits needed for most properties seem out of reach, especially on a single income – and that’s exactly what this scheme is trying to address.
The Family Home Guarantee scheme is designed to make it easier and faster for single parents to purchase a home.
This is achieved by allowing applicants to purchase a property with a lower deposit. Instead of the typical 20% deposit, the government will guarantee home loans taken out under the Family Home Guarantee scheme for buyers with deposits between 2-20%. For these borrowers, that guarantee means they will avoid having to take out lenders mortgage insurance (LMI) which can add thousands of dollars to the cost of your home.
The Potential Negatives of the Family Home Guarantee
As with any scheme, there are always pros and cons – but here are the things you need to consider.
- Interest rates will rise
With interest rates at a record low, the question is not if they will rise but when. Interest rate rises are something all borrowers have to take into consideration, however, as participants in this scheme will be paying down a larger loan (due to a smaller deposit) it’s important to make sure you will still be able to make repayments when interest rates rise.
- Negative Equity
Negative equity occurs when the value of a property falls below the balanced owed on a mortgage. Loans with higher loan to value ratios (LVRs) are likely to be more susceptible to this as your loan amount is higher.
- Lender limits
This scheme is currently only available through selected lenders. With a limited number of lenders available, it’s possible that the loan options are less competitive or lacking the features you need. This is why it’s important to consider all of your options and compare multiple loans.
- Other schemes may be better suited
The Family Home Guarantee isn’t the only scheme currently available to buyers, so it’s important that you look at your options. Current schemes include the First Home Loan Deposit Scheme (FHLDS) that allows first home buyers to purchase with a lower deposit, the First Home Super Saver Scheme that allows young Australians to make additional contributions to the superannuation to put towards a home deposit and Stamp Duty Rebates.
Is the Family Home Guarantee scheme right for me?
This isn’t a simple answer, however, it’s one we’re here to help with. If you’re wondering what your options are for purchasing a property, get in touch so we can chat about your personal circumstances, your property goals and the best steps