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Last week in the first module of our First Home Buyer's e-Course, we worked on getting your foundations right. This week, it's all about working out which grants, discounts, schemes and incentives you might be eligible for, so you can fast-track your journey to become a home owner.
Here's the thing: the government really wants to contribute towards the cost of your first home. In fact, it's so keen to give first home buyers a leg-up that they are prepared to offer you thousands or even tens of thousands of dollars in free money.
So, which ones do you actually qualify for, and how much money can you save?
In this module, we'll walk you through all the schemes so you can figure out how much you can get and how to apply.
1. First home owner's grant (FHOG)
Here's the deal when it comes to the FHOG: if you qualify for a first home owners grant, you could get $10,000 or more.
First home owners grants are offered by almost every state and territory government, and these cash grants are available to buyers who have never purchased a home before. But the FHOG runs with some pretty tight criteria.
These vary depending on where you live, but there are generally:
- Property price caps – after a certain amount (e.g. $750,000 in NSW), you no longer qualify.
- Property type restrictions – generally, the grant is only available for a new, off the plan or heavily renovated home.
The other thing to keep in mind? It is only ever available once, on your very first property purchase. As soon as you become a home owner, even if it's an investment property and you don't use the grant, you're not eligible for this concession again.
How does the FHOG save you money?
The FHOG delivers you a cash injection that you can put towards your property deposit.
Depending on where you live, up to $15,000.
Decide whether you're more likely to be shopping for a new home or an established/pre-existing home. If a new or off the plan home is potentially on the cards, use our guide by clicking the blue button below to find out whether you qualify for the FHOG in your state or territory.
2. First Home Loan Deposit Scheme (FHLDS)
If you want to buy a home and you have a deposit saved up of less than 20% of the purchase price, you'll need to pay lenders mortgage insurance. LMI is a premium that you pay, but it protects the bank. It's a guarantee to the lender that your mortgage will be repaid by the insurer, even if you stop paying and it has to sell your home to recover the cost of their loan.
It works like this: say you don't pay your mortgage for 12 months. The bank is forced to repossess and sell your home, but it only achieves a sale price of $450,000. The outstanding mortgage is $485,000. Your LMI premium kicks in and covers the $35,000 difference to the bank. The insurer will then chase you up for this money.
LMI is expensive, as it is priced according to your risk. In a nutshell, the bank is protecting itself against the risk of you not being able to afford your home loan – and you pay the premium, in order to convince them to accept the risk.
How does the FHLDS save you money?
The First Home Loan Deposit Scheme helps you avoid paying LMI, as it invites eligible first home buyers with a 5% deposit to get home loans without lenders mortgage insurance. Instead, the government guarantees the difference between your home loan deposit (say 5%) and the 20% deposit the bank would prefer you hand over.
On a $400,000 home with a 10% deposit worth $40,000, you're looking at an LMI premium of around $6,900. On a $600,000 home with a 10% deposit worth $60,000, your LMI premium would set you back around $24,000. So with the FHLDS, you could save upwards of $20,000.
Review the criteria for the FHLDS and work out if you're eligible for this scheme. Be aware that property price caps exist, as well as income limits, in order for you to qualify, so we've outline all of the ins and outs for you in this guide to the FHLDS.
3. Family Home Guarantee (FHG)
The FHG was introduced in the 2021 Federal Budget with single parents in mind. The program has created space for 10,000 single parents (over 4 years – 2,500 people per year) to be able to buy a home with just a 2% deposit under the government's Family Home Guarantee.
In a similar way to how the FHLDS allows you to buy a home with just a 5% deposit, with the government guaranteeing the rest, the FHG allows you to buy with a 2% deposit, and the government guarantees the remaining 18% of the deposit to the bank. The bank then feels comfortable loaning you the money, because it knows the bank will cough up the funds if you stop paying the mortgage, if it has to sell the property in a hurry, and the property sale doesn't cover the mortgage.
How does the FHG save you money?
This scheme doesn't just save you money, but it also gets you into a home sooner. It means you only have to save a 2% deposit, and you don't have to pay an expensive LMI premium. On a $500,000 home, this requires a deposit of just $10,000. If you're able to buy a new or off the plan property for that price point, you could use the FHOG for your deposit and avoid having to save up at all.
On a $500,000 home purchase, it would be extremely difficult to find a lender willing to provide you a loan of $490,000, with you paying just a 2% deposit. So, some might say the potential saving here is invaluable – because it helps you buy a home with a very low deposit, which isn't usually available to home buyers.
Work out if you are eligible for the FHG. The first and most obvious criteria is that you must be a single parent! Review the rest of the criteria and see if you qualify for the Family Home Guarantee.
4. Stamp duty discounts and concessions
Stamp duty is a form of tax charged by the state government, and it applies when you buy a property (but not when you sell). Stamp duty is one of the biggest costs you'll pay when buying property in Australia – except when you're a first home buyer.
The great news is, first home buyers in most states and territories can qualify for one-off discounts or concessions, depending on the type of property you buy and the purchase price.
How do stamp duty discounts save you money?
Every state and territory has a different program and different criteria. Some of these discounts are worth 100% of the amount owning, meaning you pay no stamp duty at all. Others provide a discount or concession up to a certain property price cap.
The amount you're eligible to receive or offset will depend on your location and the property value. But as a guide, in NSW on a property worth $770,000, you could save just over $25,000 in stamp duty.
Use our stamp duty calculator to work out how much stamp duty you could save when you buy a home. Run the numbers on a few different price points so you have a clear idea of how much you could save, and at what point the discount runs out.
5. First Home Super Saver Scheme
Under the First Home Loan Super Saver Scheme, first home buyers can withdraw a portion of their extra super contributions and use them as a deposit for a property. An individual can withdraw a maximum of $15,000 per financial year, with an overall limit of $30,000 in total.
In the 2021 federal budget, the total withdrawal limit of the FHSSS increased from $30,000 to $50,000.
How does the FHSSS save you money?
Essentially, it allows you to pay less tax on your income. If you make a $1,000 super contribution into this scheme, you'll pay just 15% tax ($150) instead of paying tax at your own income tax rate (up to 45%, or $450). It's a great way to set up a disciplined savings habit, while also boosting your home loan deposit and paying less cash.
The most you can save in this scheme is currently $50,000. Assuming you currently pay tax in the middle, most common income tax threshold of 32.5%, this means you'd pay $7,500 tax instead of $16,250 – which is almost $8,750 more towards your home deposit.
Consider how long you plan to save up for a home loan deposit. If it's more than a year, this could be a good option to make some significant savings – when you think about it, this is access to free money. Also keep in mind that if you are buying with a partner or spouse, you can both use the FHSSS and double your savings!
Before you wrap it up – there are a few costs of buying a home that we want you to be aware of. We've summed them up here for you as a list of 10 home buying costs you don't even know about until you start shopping – so you don't get a rude shock like the first homebuyers who went before you, and were staggered to discover they needed thousands more than they'd planned!
To sum up:
We've just done a thorough round-up of the free money and programs you could apply for. Hopefully you're feeling a little motivated by now, because you could have access to:
- First Home Owners Grant – a cash grant worth up to $15,000
- First Home Loan Deposit Scheme – helping you avoid paying LMI, a saving of up to $25,000
- Family Home Guarantee – enabling you to buy with just a 2% deposit, saving tens of thousands in LMI
- Stamp duty exemptions – saving you up to $25,000
- First Home Loan Super Saver Scheme – boosting your home loan deposit by almost $9,000
All in all, you could benefit to the tune of $50,000 or even more, if you're eligible to use a few of these different grants and incentives to jumpstart your home-buying plans.
If that doesn't put pep in your step, nothing will. In next week's module, we'll help you work out how to set your property goals. From how much you can afford in repayments to how to choose the right property, we'll hold your hand through the next steps.
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