The First Home Loan Deposit Scheme has started making it easier for entry-level buyers to purchase property

The First Home Loan Deposit Scheme has started in Australia, making it easier for borrowers with smaller deposits to buy property. This is everything you need to know.

First home buyers hoping to save thousands of dollars and get on the property ladder sooner are being urged to take action immediately.

The Morrison Government’s new First Home Loan Deposit Scheme opens for business on January 1 and allows borrowers with deposits as small as five per cent apply for a mortgage.

However it is only available to the first 10,000 successful applicants.

Twenty-seven lenders have been hand-picked to offer the special loans including two major financial institutions – the Commonwealth Bank and National Australia Bank.

The new First Home Loan Deposit Scheme is open for business on January 1.

The scheme enables first-time buyers to have a five per cent deposit saved up and the government will act as a guarantor for the remaining 15 per cent deposit.

This means borrowers will escape the exorbitant lenders’ mortgage insurance (LMI) – a charge that protects the lender not the borrow if there is a default on the loan.

LMI costs apply when there is a deposit of less than 20 per cent.

CUA’s chief customer officer Megan Keleher urged first-time borrowers to get organised as soon as possible and see if they could apply for the scheme.

“Check the eligibility criteria now to see whether you qualify in order to avoid disappointment down the track,” she said.

“Participating lenders won’t be applying higher rates to borrowers going through the scheme, which means you can begin researching and comparing rates and lenders now to find the best fit.”

First-time borrowers are being urged to get organised as soon as possible and see if they can apply for the First Home Loan Deposit Scheme.

Using Genworth’s LMI calculator for a borrower purchasing a $500,000 home with a five per cent deposit of $25,000, they would pay an estimated $15,960 in LMI costs.

If the borrower is successful under this scheme they would not have to pay the LMI charges.

And to prevent the two major banks – CBA and NAB getting the bulk of loans – non-major lenders will receive no less than 50 per cent of the 10,000 loans on offer each financial year.

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National Australia Bank’s chief customer officer Mike Baird said they are “expecting high demand and have a dedicated team ready to support with inquiries”.

“We encourage interested Australians to contact us to see if they are eligible and how we can help,” he said.

From January 1, the big two banks – NAB and CBA – will begin offering 5000 loans under the scheme.

And the smaller lenders will offer 5000 loans from February 1.

KEY POINTS

• The scheme is available from January 1 with the two big banks and February 1 with the smaller lenders.

• It’s available to the first 10,000 successful applicants.

• Only owner-occupier, principal and interest applicants can apply.

• The income threshold is up to $125,000 for singles and $200,000 for couples which be assessed in the previous financial year.

• Property price thresholds apply in each state for capital cities and regional areas.

@sophieelsworth

Originally published as The First Home Loan Deposit Scheme has started making it easier for entry-level buyers to purchase property