What the guarantee is
A home loan usually calls for a deposit of 20% of the property’s value, and a smaller one may mean paying Lenders Mortgage Insurance. Under the scheme, Housing Australia guarantees part of the loan to the lender, which lets the buyer borrow with as little as 5% saved.
The guarantee is a legal arrangement between Housing Australia and the lender. If a borrower defaults and the sale of the property does not cover what is owed, Housing Australia pays the lender the shortfall, up to a pre-agreed limit of up to 15% of the property value. Housing Australia is not involved in assessing or approving the loan, and does not manage it.
- The deposit: at least 5% of the property value, from the buyer’s savings.
- The guarantee: Housing Australia’s promise to the lender, of up to 15% of the property value. It is not money paid to the buyer. The drawing places it over the gap between a 5% deposit and the usual 20%, which is this guide’s reading of how the two figures relate.
- The rest of the home loan, which the buyer repays in full like any other loan.
It does
- Protect the lender, so a smaller deposit can be accepted without Lenders Mortgage Insurance.
- Stay in place until the loan proves ineligible, you stop living in the home without an exemption or rent it out, you repay the loan or refinance with a lender outside the scheme, the balance falls to 80% or less of the property value as the lender assessed it at the start, counting scheduled repayments only (prepayments you can redraw do not count), you borrow more against it from your lender, or you sell.
It does not
- Pay you any money or count as a deposit.
- Help with any missed repayments during the normal life of the loan.
- Stop you defaulting on the loan.
- Stop the lender acting on a default, including selling the property.
- Cover anything you still owe the lender once the sale proceeds and other guarantee payments have been applied and paid, or if the lender cannot claim because eligibility criteria were not met.
Both lists are drawn from section 1.3 and section 4.3 of the scheme’s Information Guide.
Who is eligible
The Information Guide lists these conditions for first home buyers:
- You, or both of you if applying jointly, are Australian citizens or permanent residents on the date you sign the home loan.
- Your savings for the deposit come to at least 5% of the property’s value, but less than 20%. If you have 20% or more saved after other purchase costs, such as stamp duty and legal fees, the loan is not eligible.
- You are a first home buyer, or have not owned property in Australia in the last 10 years.
- You are buying or building a home to live in; investment properties are not eligible.
- You are at least 18.
- You apply alone or with one other person (a partner, friend or family member). Loans with three or more borrowers do not qualify.
- The property is residential, and its purchase price and its value as the lender assesses it are both at or below the price cap for its location.
- The loan is for a home you will live in, comes from a Participating Lender, repays principal and interest, and runs for no more than 30 years, plus up to 3 years to build a new home (that building time may include interest-only payments).
The scheme’s site has an eligibility tool; the guide calls it only a guide, and says the lender confirms eligibility.
Price caps in New South Wales
Both the purchase price and the home’s value, as the lender assesses it, must be at or below the cap for the location. When building on vacant land under separate contracts, the land price plus build costs must also come in under the cap.
| Area | Price cap |
|---|---|
| The capital city, and the regional centres of the Central Coast, Coffs Harbour–Grafton, Illawarra, Mid North Coast, Richmond–Tweed, and Newcastle and Lake Macquarie | $1,500,000 |
| Other areas of NSW | $800,000 |
Some suburbs have more than one postcode, which can mean different caps. The site’s postcode search finds the cap for a location, and the site says to confirm it with the lender for any home you are considering.
How an application happens
You cannot apply directly to Housing Australia. You apply through a Participating Lender, alongside your home loan application, and after pre-approval you have 90 days in which to find a home and sign a contract of sale. Being eligible for the scheme does not guarantee a loan: the lender’s own credit policy and approval criteria still apply.
What stays your cost
The Information Guide says every cost and repayment of the home loan is yours to meet, stamp duty, bank fees and legal costs included. In NSW that duty is transfer duty, set out on sheet 1; the NSW Government’s own first home buyer programs, run by Revenue NSW, are on sheet 2.
You declare that you will move into the property no later than 6 months after settlement (or of the occupancy certificate for a new build) and keep living there while the loan is supported. If you stop living there without an exemption, rent it out, or the loan otherwise stops being covered while the balance is still above 80% of the property value, the lender may require Lenders Mortgage Insurance or other costs.