Getting onto the property ladder has long been a challenge for single-parent households, and in particular, saving the money for a deposit can make the barrier to entry very high.
Fortunately, single-parent households look set to benefit under a new program recently announced as part of the 2021 Federal Budget.
Over the next four years, the Family Home Guarantee will enable up to 10,000 households to purchase a home with as little as a 2% deposit.
Traditionally, when homebuyers look to take out a loan with less than a 20% deposit, they are normally required to pay lenders mortgage insurance (LMI), which is an additional expense on top of their deposit and other closing costs. Oftentimes, LMI can cost tens of thousands of dollars, making it difficult to get back onto the property ladder.
With the Family Home Guarantee, the Federal Government will effectively act as the guarantor on the deposit shortfall up to that 20% level, in the same way as the First Home Loan Deposit Scheme does.
The other significant benefit of this program, for single-family households, is that it is not purely for first home buyers. It’s open to anyone who meets the criteria and opens the door for many households who might have thought it impossible to get back into property ownership after a separation or divorce.
To be eligible, you need to be a single parent with a dependent child and have an annual table income of less than $125,000. The scheme is open to anyone looking to build a new property or buy an established dwelling and intending to live in it as an owner-occupier.
To apply for the program, you must do so through the National Housing Finance and Investment Corporation (NHFIC), and find out who you might be eligible to borrow from, of the range of approved lenders.
It’s important to note that borrowers will still need to be able to service the loan based on standard serviceability requirements, like anyone applying for a traditional loan.
If you are borrowing with a 98% LVR, there are some risks associated with that. It’s important that you are able to make your repayments based on your current income, expenses and any debts that you might have.
As we’ve seen over the last few years, the First Home Loan Deposit Scheme has been very popular and has helped thousands of first home buyers enter the marketplace. It is anticipated that the Family Home Guarantee will be no different. This initiative will begin on 1 July 2021.