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Empower Wealth Blog post by Empower Wealth

The Family Home Guarantee Scheme

Note: This article is an extract from MLC. 

If you’re a single parent with dependents, you may be eligible to purchase a home with as little as a 2% deposit via the Family Home Guarantee Scheme.

How does it work? 
You usually need to save a deposit of 20% if you want to borrow to buy a home without needing to pay lenders mortgage insurance (LMI). Under the Family Home Guarantee Scheme (FHG), the Government will provide a limited loan guarantee of up to 18% of the home value. This may enable you to buy a home with a deposit of only 2% and no LMI will be payable.

What are the key points?

  • You’ll need to earn less than the income limit and meet other eligibility conditions.
  • The purchase price will be capped, depending on the property’s location.
  • You need to move into the home as your main residence.
  • You must not have a spouse or de facto partner. You can’t be married, even if legally separated.

Who may be eligible? 
To be eligible for the FHG, you must:

  • be an Australian citizen aged 18 years or older
  • earn taxable income of $125,000 pa or less, based on the last financial year
  • not currently have an interest in any Australian real property, including residential, investment and business property, and
  • have either full-time or shared care of at least one eligible dependant.
    The home can be new or existing. Where both parents have shared custody, both can apply for the FHG provided that the eligibility rules are met individually.

What lending rules apply? 
You’ll need to meet your lender’s normal credit criteria to ensure you can service a loan of up to 98% and provide evidence you’ve saved the 2% deposit.

What types of homes can I buy?
Under the scheme, you’re able to purchase an eligible residential property which includes:

  • an existing freestanding house, townhouse or apartment
  • a house and land package
  • land and a separate contract to construct a home, or
  • off-the-plan townhouse or apartment. Certain requirements apply depending on the type of property and contract you’re entering into.

What are the property price caps?
Caps apply to the purchase price to ensure participation is spread fairly across the country. The capital city price caps will apply to large regional centres with a population over 250,000, namely the Gold Coast, Newcastle and Lake Macquarie, the Sunshine Coast, Illawarra (Wollongong) and Geelong.

What’s the downside?
While the FHG may help you buy a home sooner, you need to keep in mind that a smaller deposit means a bigger loan. And a bigger loan means bigger loan repayments, as well as higher total interest payments over the life of the loan. It may be the case that the additional interest payable outweighs the LMI savings. To find out whether the FHG is right for you, you may want to speak to a financial adviser.

Also, if you move out of your home for an extended period and rent your home out, the loan may no longer be guaranteed by the Government. You may need to pay additional fees and charges, as well as LMI, depending on factors such as the value of your home and your outstanding debt at that point in time.

Which lenders are participating and how do I apply?
Applications can be made directly via one of the approved lenders or their authorised representative (such as a mortgage broker). The Government has appointed specific lenders to the panel of mortgage lenders able to offer guarantees under the scheme.

What other assistance programs are available?
The FHG complements (but doesn’t directly interact with) other Government assistance programs. These include the:

  • First Home Super Saver Scheme, where you could save for the deposit on your first home in the concessionally taxed superannuation system (if you’ve never owned property before)
  • First Home Owner Grant, which offsets the effect of Goods and Services Tax on buying or building a home, and
  • State and Territory based stamp duty concessions.

What next?
To find out more about the FHG and ways to fund the purchase of your first home, we recommend you seek financial advice. You can also visit nhfic.gov.au for more information.

Important information and disclaimer
This communication has been prepared by Bridges Financial Services Pty Ltd trading as MLC Advice ABN 60 003 474 977 AFSL 240837, Consultum Financial Advisers Pty Ltd ABN 65 006 373 995 AFSL 230323 (‘Consultum’) and Godfrey Pembroke Group Pty Ltd ABN 38 078 629 973 AFSL 245451 (‘GPG’), members of IOOF Holdings Limited ABN 49 100 103 722 (‘IOOF’) group of companies, registered office Level 6, 161 Collins Street Melbourne VIC 3000, for use and distribution by representatives and authorised representatives of Bridges, Consultum, GPG and Australian Financial Services Licensees with whom an IOOF member has a commercial services agreement.
It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this document is current as at 20 April 2022. No liability or responsibility is accepted by IOOF or any of its subsidiaries, or by any agents, officers or employees of IOOF and its subsidiaries, for any loss arising from reliance on this communication. Any opinions expressed constitute our views as at 20 April 2022. Case studies are for illustration purposes only. Any tax information provided is a guide only. It is not a substitute for specialised tax advice.
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