The government has announced a new policy to help first home buyers enter the property market. But what does it really mean?
What is it?
The First Home Loan Deposit Scheme will allow eligible borrowers who have saved a 5% deposit to get a loan without paying lenders mortgage insurance (LMI).
While some lenders already offer 95% LVR home loans, you typically need to pay LMI if your deposit is less than 20% of the property’s value. So, how can you get involved?
Who is eligible?
Initially, access to the scheme will be limited to 10,000 first home buyers with a 5% deposit. Use of the scheme will also be limited to properties in certain regions, which are yet to be defined.
Singles must earn under $125,000 and couples’ combined earnings must be less than $200,000 per year.
How much can I save?
The amount you could save by avoiding LMI depends on the size of your deposit and how much you borrow.
For example, if you buy a home worth $500,000 with a deposit of 5%, your LMI will typically cost around $16,000. However, buying a home for $700,000 with a 5% deposit could bring your LMI cost up to $30,000.
It’s worth keeping in mind that some lenders, like Liberty, can build the LMI into your home loan, so you can repay it over time.
This means there are still options for people with low deposits even if they don’t meet the criteria of the new scheme.
More to come
The scheme will come into effect from 1 January 2020 and rollout details are yet to be confirmed.
For more information on first home buyer and low-deposit home loans talk to a Liberty Adviser.