Family Home Guarantee

10,000 single parents will be able to buy a home with a 2% deposit under the government's Family Home Guarantee.

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The 2021 federal budget is introducing a new scheme to allow single parents to enter the property market with small deposits. By acting as guarantor, the government will enable 10,000 single parents to buy homes faster while avoiding the cost of lenders mortgage insurance (LMI) that usually applies to low deposit borrowers.

The Family Home Guarantee will allow a small number of single parents to buy homes faster while also saving money on LMI. These borrowers will need to borrow the remaining 98% and will still need to prove that they can repay the loan, as with any other borrower.

We will update this guide as more information becomes available.

How does the Family Home Guarantee work?

Australian home buyers typically save a deposit of between 5% and 20% of their property's value. They save the deposit and borrow the rest. Under the Family Home Guarantee, an eligible single parent can buy a home with just a 2% deposit saved.

This is a much smaller deposit size and allows the borrower to get a home more easily. It does mean they have a bigger loan, however.

The first places for the Family Home Guarantee will open on 1 July 2021.

The scheme's big benefit: Avoid LMI costs

Normally, when your deposit is smaller than 20%, your lender will also charge you lenders mortgage insurance (LMI). LMI premiums can cost thousands, or even tens of thousands of dollars. LMI protects the lender in the event you can't repay the loan.

Under the Family Home Guarantee, a single parent can get a home loan with a 2% deposit and avoid lenders mortgage insurance. By acting as a guarantor, the federal government essentially backs the borrower and allows them to avoid this extra home buying cost.

Who is eligible for the scheme?

While we don't have all the details at this point, to qualify for the scheme, a single parent must:

  • Be an Australian citizen (not a resident) with dependent children
  • Have an annual taxable income of $125,000 or less
  • Be an owner-occupier (but they do not need to be a first home buyer)
  • Be building a new home or purchasing an existing home

As with similar government schemes, there will likely be region-specific price caps on properties. If the price of the property you are purchasing exceeds these caps, you will not be able to qualify.

How do I apply for the scheme?

There will be a limit of 10,000 places for the Family Home Guarantee, or 2,500 places per year across the next four financial years. You will need to apply via the scheme's administrator, the National Housing Finance and Investment Corporation (NHFIC).

There will be more information about the scheme next week on the NHFIC website.

Successful applicants will need to apply for a home loan with a lender that is taking part in the scheme.

Are there any risks with this scheme?

Buying a home with just a 2% deposit does come with some risks. For one, you have very little equity in the property. This means that you start your home loan owning just 2% of the property. If the value of the property went down, your debt could end up being more than the property's value.

As long as you're able to make your loan repayments, then this is not a problem because you will be building your equity. But borrowing 98% also means that your loan will be quite substantial. The smaller your deposit, the more money you borrower. And the more you have to borrow, the more interest you pay.

While the Family Home Guarantee is a federal policy intended to support single parents, if you can't repay the loan, then the government won't help you. You will have to sell the property so the lender can recover the debt.

The Family Home Guarantee is similar to the existing First Home Loan Deposit Scheme. This scheme allows first home buyers to enter the market with a 5% deposit. They can also avoid LMI costs.

There are also first home owner grants available in every state and territory and possible stamp duty exemptions for first-time buyers.

The First Home Super Saver Scheme also exists to support first home buyers by allowing voluntary super contribution withdrawals.

HomeBuilder provides cash grants to first home buyers building new homes.

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