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What is the Regional Home Guarantee?
Soon you'll be able to build or buy a new home in regional Australia with government assistance.
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Under the Regional Home Guarantee (RHG), 10,000 eligible borrowers can buy or build new homes in regional Australia with just 5% deposits from October 2022.
You'll be able to borrow the remaining 95% of your property's value while avoiding lenders mortgage insurance (LMI) premiums. LMI can add tens of thousands of dollars to your buying costs when your deposit is smaller than 20%. So this is a big help for buyers.
- Note: The RHG was announced as part of the 2022–23 federal budget. It will not come into effect until legislation passes parliament.
How the Regional Home Guarantee works
We don't know much about the RHG so far. But given that it's being administered by the National Housing Finance and Investment Corporation (NHFIC) and was announced along with expansions to similar schemes like the First Home Loan Deposit Scheme, we have a fairly clear idea how it will work.
- 10,000 eligible buyers per year will be able to access the scheme
- To qualify, you need to build or buy a new home in regional Australia
- You need to save a 5% deposit and apply for a home loan to borrow the remaining 95%
- Your lender needs to be participating in the RHG and you'll need to apply for a place in the scheme
- Once accepted, you can avoid paying LMI while still borrowing 95%
Who is eligible for the scheme?
As with similar schemes, we can expect that access to the RHG will be subject to restrictions such as:
- Income. Eligible applicants will need to be earning under a certain amount to qualify.
- Price. There will be an upper limit on the value of the property you are buying or building. There will likely be different price caps for different regions.
- Ownership. If you own a home already you probably won't qualify.
- Citizenship or residency. Similar schemes have only been available to buyers who are citizens, not even permanent residents.
How much will the Regional Home Guarantee save me?
LMI is often a forgotten homebuying cost, after your deposit, stamp duty and conveyancer's fees. And it only applies to borrowers with low deposits, which means deposits smaller than 20% of your property's value.
Here's a simple example of how much LMI can cost:
- You buy a $500,000 house
- Your deposit is $50,000, or 10%
- Your lender charges you an LMI premium of $8,428
Now if you ran the same numbers with a 5% deposit ($25,000), you'd pay over $15,000 in LMI.
If you successfully apply for the RHG, you simply avoid this cost altogether. Instead, the government backs your loan under the scheme, allowing your lender to avoid charging you the premium.
What other support is available for homebuyers?
There are many other schemes and help for homebuyers, at the state/territory and federal level:
- First home owner grants. Offered by state governments, first home owner grants are for first home buyers and are usually worth around $10,000. This money can be used towards your purchase costs and is often reserved for first home buyers purchasing newly built properties.
- Stamp duty concessions. Many governments waive or discount stamp duty for first home buyers, removing one of the bigger property costs.
- Family Home Guarantee. Under the Family Home Guarantee, eligible single parents can buy homes with 2% deposits and avoid LMI costs while borrowing the remaining 98%.
- First Home Loan Deposit Scheme/New Home Guarantee. Similar to the RHG, the First Home Loan Deposit Scheme and New Home Guarantee are 2 schemes let you buy or build a home with a 5% deposit while avoiding LMI. These schemes are open to buyers in Australia's major cities as well.
- First Home Super Saver Scheme. Offered by the federal government, the First Home Super Saver Scheme allows you to make extra contributions to your super and then withdraw them to use for a home loan deposit, with tax benefits for doing so.
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