How New Government Measures Might Help First Home Buyers Secure a Loan?
If you’re a first home buyer at the moment, then you will have noticed the Governments, Federal and State, seem to just want to throw money at you to try and help you get into that first home. You’ve got to love that. Let’s have a brief look at what the offerings are and how they can assist.
There are essentially four different offers available:
- First Home Buyer Duty Exemption or Concession
- First Home Owner Grant (FHOG)
- First Home Loan Deposit Scheme
- Homebuilder
Please note that I’m looking at this from a Victorian perspective, so things may be different in other states.
The first three apply only to first home buyers, while the fourth is applicable to anyone that meets the criteria.
The First Home Buyer Duty Exemption or Concession relates to the purchase of either a new or existing property as a first home to owner occupy and live in. If you qualify for this and the property you purchase has a value of $600,000 or less (technically the ‘Dutiable Value’ to be $600,000 or less) then you will receive the first home buyer duty exemption, or if the value is between $600,001 to $750,000 you will receive the first home buyer duty concession. This relates to the stamp duty normally charged on the purchase transaction. In the case of the exemption, you don’t pay any stamp duty, while in the case of the concession, you pay a reduced rate of the stamp duty.
The First Home Buyer Grant is applicable only to new homes. That is if you are building your own home, or are purchasing a home that is being offered for sale for the first time, as well as off the plan purchases. In this instance, in Victoria, you can receive $10,000 or, if the property is in regional Victoria, $20,000. The property involved, however, has to be valued at $750,000 or less.
The First Home Loan Deposit Scheme is a little different in that its aimed to reduce the amount of funds contribution required by home loan applicants in order to pass the Bank's credit criteria to obtain the loan. How this works is that the Government pays the Lenders Mortgage Insurance (LMI) premium normally associated with borrowing over 80% of the properties value. There are still certain criteria applicants must meet, property value again being one of them, but this time it is based on postcode, and the criteria now include your level of income as well. Not all lenders are participating in this scheme either but if it works for you then you can save several thousand dollars on the LMI premium.
Homebuilder is the latest offering from the Federal Government to help the construction industry during the current COVID-19 situation. This sees a grant of $25,000 available to any eligible applicants ( not restricted to first home buyers ) to go towards either construction of a new home, including off the plan purchasers, or for a significant renovation of an existing home. Again there are certain criteria applicants must meet, and for now, at least it appears to only be a short term offer. Any build contract must be signed before the end of the year and construction must commence within three months of the date of the contract.
In the case of the first three, all the eligibility criteria are determined prior to settlement and so the applicable grant amounts can be factored into the equation so that the loan amount applied for is for the correct amount, however, the Homebuilder scheme is proving a bit more problematic in its current form for the Banks. Only because final eligibility is determined based on if the construction starts within three months of the contract being signed. Which means that at the time of loan application, we can’t be certain that the $25,000 will actually be received. This requires that the initial loan applications will need to be assessed for the full amount.
In addition, you may still be eligible for the FHOG if you or your spouse/partner purchased a property on or after the 1st of July 2000 and have not lived there as your home.
Additionally, to receive the FHOG at least one applicant must:
- Must occupy the home as their principal place of residence (PPR) for at least 12 months, commencing within 12 months of settlement or completion of construction.
- Be aged 18 or over (discretionary).
- Be an Australian citizen or permanent resident.
- In the case of the purchase of a new home - as at the date on which the applicant/s become entitled to possession of the home under the contract, which generally occurs on the date of settlement.
- And finally, in the case of entering into a comprehensive building contract - as at the date on which the building is ready for occupation as a place of residence, which generally occurs when construction of the home is finished.
On a final note, trying to make sense of it all can be a little daunting so it is always a good idea to have an in-depth discussion with your lender or broker to make sure you fit the eligibility criteria for some, or all of these offers so you can take advantage of them while they are still available.