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First Home Guarantee – previously the First Home Loan Deposit Scheme (FHLDS)

When you’re looking to buy your first home, it’s important to wrap your head around all of the grants and incentives that you could potentially leverage in order to save up to tens of thousands of dollars.

With changes to government policies, keeping on top of these grants can be a tricky task, especially if you don’t know where to look. Similar terms and conditions are thrown around in updated versions of these grants, which can make it difficult to understand exactly what they have to offer.

That’s why we’ve put together a guide on the newly introduced First Home Guarantee, so you as a first home buyer can be confident of what to expect and whether you’ll be eligible for it.

What is the First Home Guarantee? 

The First Home Guarantee (FHBG) is a recently introduced first home buyers’ incentive as part of the broader series of Home Guarantee Schemes that have been made available by the Federal Government to alleviate the ever-increasing prices of the housing market. 

Unlike the state-specific First Home Owners Grants that most people are familiar with, these Home Guarantee schemes are nationwide grants available to all Australians as long as they meet the eligibility requirements for application. 

Happy family unpacking boxes in new home on moving day

The purpose of the FHBG is to provide more first home buyers with the opportunity to purchase their first home sooner and without a huge deposit. It has been made available to 35,000 individuals over the next financial year (1 July 2022 – 30 June 2023) and is administered by the National Housing Finance and Investment Corporation (NHFIC).  

The First Home Guarantee has only been introduced recently, merging the existing First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG) to form one comprehensive scheme that’s more accessible to first home buyers.

What was the First Home Loan Deposit Scheme (FHLDS)?

Prior to the 2022 Federal Election, the First Home Loan Deposit Scheme (FHLDS) was one of the many schemes made available by the Government to help first home buyers get their foot in the door sooner without a sizable deposit and without paying exorbitant insurance premiums. 

Much like the current First Home Guarantee, the FHLDS was administered by the NHFIC to help reduce the initial costs associated with purchasing a home. Subject to participating lenders, the FHLDS was available to 10,000 people purchasing a newly built, existing or established property for the first time.

Under the scheme, the NHFIC guaranteed up to 15% of eligible first home buyers’ home loans, meaning that you could potentially purchase a property with as little as a 5% deposit. Normally, a deposit of 20% would be necessary to secure a home loan without paying costly lenders mortgage insurance (LMI) premiums, but the FHLDS allowed buyers to bypass the need for LMI since the Government was essentially insuring the difference. 

What was the New Home Guarantee (NHG)?

The New Home Guarantee was the other scheme, along with the First Home Loan Deposit Scheme, that was scrapped in favour of the new First Home Guarantee. Similarly to the FHLDS, 10,000 places were made available to assist first home buyers purchase quicker and with less deposit.

The terms of the scheme were essentially identical: the NHFIC would guarantee a maximum of 15% of the property value and allowed first home buyers to purchase with only a 5% deposit whilst removing the need for LMI.

First Home Loan Deposit Scheme (FHLDS) vs New Home Guarantee (NHG)

The only major difference between the two was the type of property that was eligible under each scheme. The New Home Guarantee was applicable for first home buyers looking to construct a new home, whereas the FHLDS was applicable to those buying existing or established property. 

First home buyers looking to purchase newly built property were eligible under both schemes. 

How does the First Home Guarantee work?

The First Home Guarantee (FHBG) operates under the same terms as its two predecessors. The scheme will guarantee a portion (up to 15%) of the property value allowing first home buyers to obtain home loans with less deposit upfront. Moreover, it helps buyers with less deposit avoid costly lenders mortgage insurance premiums that can often add up to be in the tens of thousands.

By combining the FHLDS and NHG, the First Home Guarantee does not discriminate between different property types and allows for the purchase or construction of new property, as well as the purchase of an existing property.

The FHBG is an appealing option for younger first home buyers who are able to afford property, but are struggling to put together a sufficient deposit. By providing a guarantee in lieu of LMI, it helps remove the main barrier to entry to the property market.

First Home Guarantee lenders

Just be sure to check with your lender to see if you can apply for the First Home Guarantee as your eligibility for the scheme will be subject to lender participation.

A list of participating lenders can also be found via the NHFIC website.  

First Home Guarantee eligibility:
who is eligible for the scheme?

 

Although the NHFIC provides a general eligibility assessment that shows you what schemes and incentives you may qualify for, the tool should be used as an initial indicator rather than a strict guide as it doesn’t take into consideration all of the key eligibility criteria.  

Eligibility requirements for the First Home Guarantee can be broken down into two primary categories: personal and property. 

a woman holding her phone

Personal eligibility requirements are loosely the same as many other first home buyer incentives and include the following:

  • You must be an Australian Citizen at the time of signing the property purchase agreement.
  • You must be 18 years of age or older.
  • Your annual income must not exceed $125,000 for individual applicants or a combined income of $200,000 for couples.
  • You must become an owner-occupier once you have purchased the property, i.e. you must move into the property within 6 months of purchase and continue to reside there so long as your home is guaranteed under the FHBG. 
  • You must be considered a first home buyer, i.e. you must not have had prior ownership or interest in any property within Australia. 

We recommend that you contact the relevant participating lender for any further clarification on eligibility criteria, as terms and conditions may change depending on your lender.

A checklist for these personal eligibility requirements and other important information can be found within this informational online pamphlet provided by the NHFIC. 

Under the FHBG scheme, the property you intend to purchase must be classified under the label of ‘residential property’ to be eligible for the guarantee. Residential property refers to any of the following:   

  • An existing house, townhouse or apartment. 
  • A house and land package.  
  • Land and a separate contract to build a home.  
  • An apartment or townhouse bought off the plan.    

These classification conditions are quite lax, meaning that the only real eligibility concerns for most first home buyers have to do with property valuation. For any homes purchased under the First Home Guarantee, the government allocates a price cap according to the state and area in which the property is purchased. 

If you intend on applying for the FHBG, make sure you refer to the postcode search tool on the NHFIC website to check the property value threshold for your area.  

Buying as a single or couple

You can apply for the First Home Guarantee as a single or as part of a couple, but it is not possible for the FHBG to guarantee more than one home loan for the same name. 

Furthermore, joint application is only available for those applying with their spouse or de facto partner where both parties are listed on the home loan. This means any joint applications made under the following conditions will be deemed ineligible:

  • 2 borrowers but the other party is not your spouse or de facto partner (note: this includes joint applications with relatives, friends, etc.)
  • More than 2 borrowers, even if one of the parties is your spouse or de facto partner.

If you do submit a joint application as a couple, you will be assessed based on your combined financial situation and eligibility status. 

Salary threshold

To satisfy the income requirements for the First Home Guarantee: test: 

  • Singles: Taxable income for the previous financial year must not exceed $125,000
  • Couples: Combined taxable income for the previous financial year must not exceed $200,000. 

The income assessment will be carried out by the lender issuing your home loan, but you will need to provide the relevant Australian Taxation Office (ATO) documentation (notice of assessment). 

How much deposit do you need? 

Though the FHBG is specifically designed to assist first home buyers purchase with less deposit upfront, there is still a minimum requirement of at least 5% of the property value

However, you are expected to use as much of your savings as possible towards the deposit (subject to lending policies). Moreover, if you have more than 20% of the property value saved up then you will be ineligible for the FHBG. Since the scheme is intended to help first home buyers with less financial capacity, thorough background checks are performed to ensure that people outside this criteria are not taking advantage of the FHBG through financial manipulation. 

If you need assistance with your deposit, but don’t qualify for the FHBG then you may be better off making use of a deposit bond instead. 

Loan requirements: principal and interest loans

There are additional requirements that apply to the type of home loan being guaranteed. More specifically, the home loan must adhere to these restrictions:

  • Loan term must be 30 years or less
  • Must include regular principal repayments (excluding interest-only loans specifically for construction purposes) 
  • Must include a mortgage for the property being purchased
  • Loan terms must be in AUD
  • Must include appropriate lending limits that match the FHBG’s deposit requirements
  • Lending institution must have participating lender status before the settlement date

Adjustments to loan requirements are at the lender’s discretion, however, it is their responsibility to ensure that your loan meets the above requirements before processing an application.  

Owner-occupiers only

The First Home Guarantee is contingent on the applicant maintaining their owner-occupancy status. 

This means that as long as the FHBG still guarantees a portion of your home loan, you must occupy the home as your principal place of residence and move into the property within 6 months of the settlement date.

If at any point, you stop living in your property (including moving out of the property at a later date) your home loan will no longer be guaranteed by the FHBG, meaning that you may need to pay lenders mortgage insurance and other fees that were avoided by means of the First Home Guarantee.  

The only exception to this rule is for members of the Australian Defence Force (ADF) who are required to relocate as part of their duties. Do keep in mind however, that you will not be able to claim ADF exemption if you have applied for the First Home Guarantee as a couple and one of the parties is not an ADF member who is still able to reside at the property. 

Permanent residents

The First Home Guarantee and other Home Guarantee Schemes are only available to Australian citizens, meaning permanent residents are ineligible. 

However, if you are a first home buyer with permanent residency, you may still be eligible for a number of other first home related incentives, such as the First Home Owners Grant or stamp duty concessions. 

The First Home Guarantee and eligible properties: what type of property can be bought?

The property types that are eligible for the First Home Guarantee and their specific conditions are as follows:

man shaking hands with a professional
  • An existing property (house, townhouse, apartment, etc.)
    If you are purchasing an established home:

    • You must move in within 6 months of home loan settlement 
    • The contract of sale must be dated on or after 1 January 2020.
  • A house and land package
    If you purchase land and enter a property construction contract with the same person (or agent, corporation, etc.) you must:

    • Have entered into a contract of sale for the land and an eligible building contract to build your home on that land before settlement.
    • Start building your home within 12 months and finish construction within 24 months of your home loan settlement date. 
    • Move in within 6 months of an occupancy certificate being issued.
  • Land and a separate contract to build a home
    If you enter purchase land and enter a property construction contract with a separate person (or agent, corporation, etc.) you must:

    • Start building your home within 12 months and finish construction within 24 months of your home loan settlement date.

  • In some situations, you may be able to obtain a home loan to buy the land before obtaining a loan to finance construction. If you do so, then you will be required to: 

      • Enter into an eligible building contract within 6 months and start building your home within 12 months of the settlement date for the home loan to buy the land.
      • Finish building your home within 24 months of the settlement date for the home loan to buy the land.
  • Buying off the plan
    If you are intending to purchase your property off the plan, you must:

    • Have signed the contract of sale before your home loan settlement date.
    • Ensure that the settlement date occurs within 90 days of your home loan becoming guaranteed under the FHBG.
    • Move in within 6 months of the settlement date for your home loan.

What property price thresholds apply?

Each state and territory has two separate property price caps depending on where your property is located. Generally speaking, metropolitan areas and capital cities have higher price thresholds that are proportionate to the property prices in that area. 

Below are the price caps for the 2022-23 financial year:

Christmas Island and Cocos (Keeling) Islands $400,000

City Area/State Region Price Cap (AUD$)
ACT 750 000
NSW – Capital City and Regional City Centres 900 000
NSW – Rest of the State 750 000
NT 600 000
QLD – Capital City and Regional City Centres 700 000
QLD – Rest of the State 550 000
SA – Capital City 600 000
SA – Rest of the State 450 000
TAS – Capital City 600 000
TAS – Rest of the State  450 000
VIC – Capital City and Regional City Centres 800 000
VIC – Rest of the State 650 000
WA – Capital City 600 000
WA – Rest of the State 450 000
Jervis Bay Territory and Norfolk Island 550,000

 

Other important considerations to make before applying for the First Home Guarantee

Depending on the property type purchased, there are different criteria and timeframes you must meet to ensure that you qualify for the First Home Guarantee. 

Make sure you check the relevant details for your property type above but if you are uncertain, it’s always best to check with your lender or an independent financial adviser for clarification.  

Buying your first home can be an exhausting process, especially if you aren’t familiar with the incentives in place to help you get there faster. That’s why at Homestar Finance we’re committed to helping first home buyers over the first hurdle. Our range of First Home Buyer’s guides address some of the most frequently asked questions by first home buyers and can help you get up to speed on the basics.

If you’re a first time buyer and unsure where to get started, check out our competitive home loan offerings and our page dedicated to helping you along the first steps of your exciting new journey.  

 

Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.  

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