What is the Regional First Home Buyer Guarantee?

Under the Regional First Home Buyer Guarantee (RFHBG), 10,000 eligible borrowers can buy or build new homes in regional Australia with just 5% deposits. The scheme came into effect on October 1, 2022, with several banks and lenders taking part.

You can 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.

How the Regional First Home Buyer Guarantee works

The scheme was announced as part of the 2022-23 federal budget, along with expansions to similar schemes like the First Home Loan Deposit Scheme.

Here are the basics:

• 10,000 eligible buyers per financial year will be able to access the scheme
• To qualify, you need to build or buy a new home in regional Australia
• There are property price caps for regional centres and other regional areas for each state
• 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?

To be eligible for the scheme you must:

• Apply either as an individual or a couple
• Be an Australian citizen at the time of entering the loan
• Be at least 18 years old
• Earn up to $125,000 for individuals or $200,000 for couples
• Be buying or building a residential property as an owner occupier
• Be a first home buyer who has not owned or invested in property before
• Have lived in the regional area or adjacent for at least the 12 months prior (at least one borrower)

Under the scheme, borrowers can purchase:

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

Property price caps

How much will the Regional First Home Buyer 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 RFHBG, you simply avoid this cost altogether. Instead, the government backs your loan under the scheme, allowing your lender to avoid charging you the premium.

Finder survey: As a percentage of property price, what deposit did Australians from different states make on their low-deposit loan?

How do I apply for the Regional First Home Buyer Guarantee?

You need to apply for the RFHBG directly through a participating lender. You cannot apply through the National Housing Finance and Investment Corporation which administers the scheme. Be aware that your deposit amount may change depending on your circumstances and lender.

You must apply for the Guarantee before 30 June 2023.

According to NHFIC, there are 32 participating lenders for its Home Guarantee Schemes.

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.