Buyer Resources

There are many ways in which the federal and state government incentives for first home buyers have substantial and surprising benefits. There are ways for first home buyers to:

• Receive a cash contribution towards their purchase
• Secure a home with less than a 20% deposit
• Avoid paying lenders mortgage insurance
• Avoid paying stamp duty
• Withdraw voluntary contributions they’ve already made to Super
• Enter into a shared equity arrangement where the government owns part of your home and pays their share of the mortgage

Here are the most relevant assistance programs, and basic details about inclusions, criteria, eligibility and relevance.

These programs have complex conditions and eligibility requirements that you’ll need to check on the relevant websites. Do not rely on this article as a comprehensive and up-to-date source of information on these changing programs.

First Home Guarantee Scheme (Federal)

The First Home Guarantee (FHBG) is part of the Home Guarantee Scheme (HGS), an Australian Government initiative to support eligible home buyers to buy a home sooner. It is administered by Housing Australia on behalf of the Australian Government.

Under the FHBG, part of an eligible home buyer’s home loan from a Participating Lender is guaranteed by Housing Australia. This enables an eligible home buyer to buy a home with as little as 5% deposit without paying Lenders Mortgage Insurance. Effectively, the federal government is ‘taking on the risk’ instead of the lender having to purchase lenders mortgage insurance.

For the FHBG, any Guarantee of a home loan is for up to a maximum amount of 15% of the value of the property (as assessed by the Participating Lender). This Guarantee is not a cash payment or a deposit for a home loan.

From 1 July 2023 – 30 June 2024, 35,000 FHBG places are available. 

To apply for the FHBG, home buyers must be: 

• applying as an individual or 2 joint applicants 
• an Australian citizen(s) or permanent resident(s)* at the time they enter the loan
• at least 18 years of age
• earning up to $125,000 for individuals or $200,000 for joint applicants, as shown on the Notice of Assessment (issued by the Australian Taxation Office)
• intending to be owner-occupiers of the purchased property
• First home buyers or previous homeowners who haven't owned a property in Australia in the past ten years.

Under the HGS, home buyers can buy a residential property, including:

• 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.

There is a price cap of $600,000 for Adelaide and regional centres, and $450,000 for the ‘rest of the state’.

First Home Owner Grant (South Australia)

The $15,000 FHOG in South Australia is only available to first home owners who buy a new home. You can choose from a house, apartment, townhouse or villa.

You will only be able to claim the FHOG SA if you pay below the following amounts for your home:

• Before 14 June 2023: $575,000
• After 15 June 2023: $650,000

The FHOG SA is not available if you buy an established home.

There are no limits on how you spend the FHOG SA, and it can used to form part of your first home deposit.

Eligibility is not based upon income, but conditions include:

• an Australian citizen or permanent resident. New Zealand citizens permanently residing in Australia who hold Special Category Visas may also apply. Only one applicant must meet this eligibility requirement.
• at least 18 years of age.
• a natural person.

In addition, you or your spouse/domestic partner must not have:

• held a relevant interest in an Australian residential property prior to 1 July 2000.
• occupied an Australian residential property in which you had a relevant interest on or after 1 July 2000 for 6 months or longer.
• previously received a first home owner grant in any state or territory of Australia. If a grant was received but later paid back together with any penalty you may be entitled to reapply for the grant.

Each applicant must reside in the home as their principal place of residence for a continuous period of at least six months commencing within 12 months of date of settlement for contracts to purchase, or the date construction is completed for owner builders or contracts to build.          

First Home Stamp Duty Relief (South Australia)

If you are a first home buyer you may be eligible for a stamp duty relief on the transfer of land, if you are buying:

• a new home* (including a house, flat, unit, townhouse or apartment);
• an off-the-plan apartment; or
• a house and land package (contract to build - comprehensive building contract);
• vacant land to build your new home on;

in South Australia and that home will be your principal place of residence.

The stamp duty relief is available on a transfer of land when the contract to purchase a new home or vacant land is entered into on or after 15 June 2023.

New home

• An eligible home with a dutiable value of $650,000 or less will receive full stamp duty relief equal to the stamp duty applicable on the transfer.
• An eligible home with a dutiable value between $650,001 and $700,000 will receive partial stamp duty relief and will still require a payment of stamp duty.

Vacant land

• Vacant land with a dutiable value of $400,000 or less will receive full stamp duty relief equal to the stamp duty applicable on the transfer.
• Vacant land with a dutiable value between $400,001 and $450,000 will receive partial stamp duty relief and will still require a payment of stamp duty.

You may be eligible for the relief if you are:

• an Australian citizen or permanent resident. New Zealand citizens permanently residing in Australia who hold Special Category Visas may also apply. Only one applicant must meet this eligibility requirement.
• at least 18 years of age.
• a natural person.

In addition, you or your spouse/domestic partner must not have:

• occupied an Australian residential property in which you had a relevant interest on or after 1 July 2000 for 6 months or longer; or
• previously received a stamp duty relief for eligible first home buyers (or equivalent) in any state or territory of Australia. If relief was received but later paid back together with any penalty you may be entitled to reapply for relief.

At least one applicant must reside in the home as their principal place of residence for a continuous period of at least six months commencing within 12 months of date of settlement for contracts to purchase, or the date construction is completed for owner builders or contracts to build.

First Home Super Save Scheme (Federal)

The FHSS scheme allows you to save money for your first home in your super fund.

The scheme allows you to make voluntary contributions (both before-tax concessional and after-tax non-concessional) into your super fund to save for your first home. If you meet the eligibility requirements, you can have these voluntary contributions released, up to a limit, (along with associated earnings) to help you purchase your first home.

You can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, up to a total of $50,000 contributions across all years.

Contributions released under the FHSS scheme can be used to buy a new or existing home in Australia.

HomeSeeker Shared Equity (South Australia)

Shared equity’ can cover the gap between what you can afford and the cost of a property, so you can boost your borrowing power and buy your own home sooner.

For example, with shared equity you may only need to make repayments on 75 per cent of the loan, with the remainder being held by a lender.

Shared equity has a significant impact on affordability because homebuyers only needed to afford repayments on the portion of a home’s purchase price not covered by shared equity, typically 75 per cent (but it can be a higher or lower percentage).

At the South Australian Government’s housing financing company, HomeStart Finance, the Shared Equity Option allows people to partner with HomeStart to get into the housing market, with HomeStart contributing up to 25% of the purchase price.

Repayments are based on borrowings for the remaining 75% of the purchase price and not the shared equity component.

HomeStart acts as a silent partner which will share in the profit or loss when the house is sold.

HomeStart Finance (South Australia)

Established in 1989, HomeStart is a State Government organisation that is 100% focused on providing home loans for South Australians.

They are an independent, profitable organisation with social goals.

Over the past 33 years, HomeStart has helped more than 81,000 South Australians into home ownership. HomeStart has been writing shared equity loans since 2007 and is one of Australia’s most experienced shared equity providers, providing a boost for thousands of South Australians so they can buy the right home, when they need it.

They also offer low deposit loans with no lenders mortgage insurance fee, and no need to participate on their Shared Equity program.

You can work directly with HomeStart, and some mortgage brokers can also set you up with HomeStart home loans. 

When it comes to buying a home, saving a deposit can be difficult and it can take a long time. Adding a Guarantor to your home loan, means you can buy with a small deposit, or in some cases, no deposit at all.

Lenders have two key requirements for you to meet:

• Borrowing capacity (ability to make repayments based upon income and expenses)
• Deposit (cash paid upfront so you’re not borrowing the full value of the property)

Summary

• A Guarantor is a person(s) who provides additional security for your home loan, and is usually a close relative
• The purpose is to avoid paying Lenders Mortgage Insurance (LMI). With a 5% deposit on a $800,000 property, LMI costs more than $41,000
• If you have a deposit less than 20%, a Guarantor can help you buy a home sooner
• The Guarantor does not need to provide cash, only a security – such as equity in their own home. No money changes hands with a guarantee.

Everything you need to know about Guarantor Home Loans

What is a Guarantor, and what types of Guarantor loans are there?

A person, or people, that provide a guarantee to assist applicant(s) in security for a home loan.

Lenders currently offer Guarantor home loans with a Security Guarantee.

What is a home loan deposit? How much do I need?

Lenders seek a 20% deposit, so that your Loan to Value Ratio (LVR) is 80% or less. The 20% deposit reduces the risk and ‘exposure’ to the lender, if applicants fail to make repayments, and the lender needs to sell the property to close the loan. When the bank is forced to sell the property, there are costs associated with the sale (real estate agent etc), and the market price for the property may have fallen since it was purchased. The 20% deposit, covers any potential shortfall and protects the bank from a loss.

If you have a LVR above 80%, the lender will require you to pay the one-off premium for a Lenders Mortgage Insurance policy which protects the lender from you defaulting. There are online calculators that allow you to estimate the price of LMI, which ranges depending on lender and the LVR.

Can I get a home loan with a small or no deposit?

Yes, there are several ways to purchase a property with little, or no deposit.

• Guarantor offers a Security Guarantee, or
• Pay Lenders Mortgage Insurance (LMI), or
• Be eligible for a government guarantee such as First Home Guarantee, or
• Work with a lender that specialises in low deposit loans, but does not charge or discounts LMI, such as HomeStart

Keep in mind, closing costs on a property often add 7-11% on the sales price, and must be factored into total borrowing and deposit calculations.

What is a Security Guarantee?

A security is an asset of value, that the Guarantor promises to make available to the lender, should the loan applicant fail to meet their obligations to repay the loan.

The security is usually property or cash, and replaces or minimises the need for the loan applicant to provide a deposit.

How does the Security Guarantee work?

Most commonly, parents are a Guarantor to their children who are first-home buyers. 

A Guarantor is not on the loan application, but assists by offering a ‘security’ in helping the loan applicant(s) get finance.

Let’s say you wanted to buy an $800,000 house, but only had a 5% deposit of $40,000, this means you would have a 95% LVR. A lender would require you to pay Lenders Mortgage Insurance (LMI) which would be a one-off cost of about $41,000. LMI can be added onto your loan amount, but it’s a huge cost considering that in this example, it’s about equal to your entire deposit savings!

To get the LVR down to 80% (where LMI is no longer required by the lender), you would need an additional $120,000 deposit, which brings the total 20% deposit to $160,000. If your parents aren’t willing to gift you $120,000, then they can become a Guarantor on the loan.

If they’ve paid off, or close to paying off their own house, your parents would easily have $120,000 of equity in their home. Equity is the difference between the market value of their home, and any outstanding loan.

Your parents don’t transfer any cash, or help you pay the loan, but are providing a ‘security’ (their own home), for the amount of deposit that you lack, to get you down to an 80% LVR.

Note, that the Security Guarantee is not decreasing the loan amount, because the $120,000 is not a deposit against your loan - it’s an asset that is elsewhere.

You will be making home loan repayments on $760,000, as your $40,000 is a deposit.

What types of Security can be used?

Note, the guarantor can offer different forms of security, such as:

• Their personal owner-occupier home (assuming it has equity)
• Their investment property (assuming it has equity)
• Cash

The Guarantor doesn’t need to liquidate (sell) these assets to create a security. You can think of the guarantee as being “on paper only”.

With property, there needs to be sufficient equity (the difference between the market value and any remaining loan) to cover the security. If there is finance on the parents property still, a ‘second mortgage’ will be added.

The Guarantor may also be financially assessed to ensure you’re not placing them in a highly risky position.

How long does the Security need to be maintained?

The guarantee is in place for the duration of the home loan, which is typically 30 years.

This means that any form of security the guarantor has provided must stay in their possession until the lender agrees to remove the guarantor condition. For example, the parents place of resident or their investment property couldn’t be sold until the guarantee is removed.

Typically, the lender will require that a cash security be transferred into a term deposit in the lenders control. That term deposit would need to remain active until the guarantee is removed.

What is an Income Guarantee? Can a Guarantor help borrowing capacity?

Lenders typically no longer offer Guarantor Income Guarantees.

Borrowing capacity is about the applicant’s ability to make repayments based upon their personal income and expenses. The lender does not want applicants to have loans they’re unable to repay. There are laws in Australia that control how lenders assess borrows, so that they’re not offered ‘too much’ debt. 

For your understanding, the purpose was to inflate the borrowing capacity of the applicant, by the guarantor agreeing to help the applicant make regular payments on the home loan.

For example, first-home buyers could ask their parents to actively help them pay for the home loan. Essentially, the bank would assess the parents spare cashflow and increase the amount the first home buyers could borrow, based on this guarantee.

In practice, parents wouldn’t actually help make the payments, so borrowers would be paying too much and failing to make repayments.

Common questions about Guarantor home loans

Should I use a Guarantor?

For many applicants, especially first-home buyers, a Guarantor is a brilliant way of entering into the property market sooner.

• With such high property prices, it can be difficult to save up a 20% cash deposit
• Lenders Mortgage Insurance is an expensive and frustrating cost
• Not all buyers qualify for government programs that assist in higher LVR loans which avoid LMI

If you are confident in your capacity to repay the loan, the Guarantor isn’t taking on too much risk, and it can benefit the applicant immensely.

When can the Guarantor be released?

In practice, most applicants are able to discharge (remove) the guarantor in 5-7 years. This is highly dependant on a number of personal and macro-economic factors. Here’s a few common ways to remove the Guarantor:

• Refinance and add cash you’ve saved to reduce the LVR to under 80%
• Refinance with a higher property valuation, to reduce the LVR to under 80%
• Pay down the loan over time, to reduce the LVR to under 80%

When the LVR is 80% of less, there is no need for the Guarantor. You will pay no LMI, and will probably also enjoy a lower interest rate.

The Guarantor should get their own independent legal advice.

What is a limited guarantee?

Often, the lender does not expect the Guarantor to guarantee the entire loan, only a certain portion. For example:

• $1,000,000 loan
• $800,000 security against the purchased property
• $200,000 security against the Guarantor

The loan applicant is liable for their $800,000 share, and the guarantor only their $200,000 share. The Guarantor isn’t ‘on the hook’ for the entire loan in this scenario, which might make them more likely to become a Guarantor. In other words, the most the bank can ‘come after’ the Guarantor for, is $200,000.  

There may be a small buffer added to the Guarantor’s requirement, so check this.

Can anyone be my Guarantor?

Typically, lenders will want it to be a parent. Sometimes they will allow a sibling or aunty or uncle.

How much can I borrow with a Guarantor Mortgage?

Borrowing capacity is based upon the applicant’s ability to pay back the loan. This is determined by their applicant(s) income, expenses, and interest rates.

Having a Guarantor on the mortgage does not affect (increase or decrease) borrowing capacity. A Guarantor is only helpful in reducing the cash deposit requirements from the applicant.

Speak with a mortgage broker or lender to understand how much you can borrow.

What are the risks to being a Guarantor?

Becoming a Guarantor for your loved ones can be a wonderful gift, however you should fully understand the risks.

The Guarantor is liable to make payments on the home loan is the applicant fails to do so.

If the applicant continues not pay mortgage payments, the lender would eventually foreclose (sell) the property that the loan is against. Through the sale, if the lender is unable to receive enough funds to repay the entire loan amount, the lender will require the Guarantor to pay the shortfall.

Typically, the Guarantor is given the option to simply pay, but they’re unable to provide these funds in a worst-case scenario, the lender has the legal power to sell the Guarantor’s asset (property etc) to recoup the shortfall. This would be a long, complex process with lawyers involved.

Additionally, the Guarantors ability to borrow money will often be reduced because their equity or asset is now tied to a lender.

Does a home loan with Guarantor cost more?

Guarantor home loans are common and most lenders offer them without additional fees, or higher interest rates.

Use a mortgage broker to compare different Guarantor home loans among many lenders, and compare the fees and interest rates you have access to.

What situations can’t I use a Guarantor?  

Typically, lenders limit the use of a Guarantor to first-homes. They do not like to use this process for:

• Second homes
• Investment properties (as a means of building wealth through property)

Conclusion

Using a Guarantor may seem complex, however it’s a very common practice and is highly recommended to people with a low deposit.

On a $1,000,000 property, a buyer with a $50,000 deposit (5% deposit = 95% LVR), the Lenders Mortgage Insurance would cost approximately $39,000.

A Guarantor would save this buyer $39,000, so you can see why that might be of interest!