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The 5% Deposit Hack: How to Buy Your Dream Home in 2025
235 Plays1 month ago
Owning your dream home might be closer than you think—with just a 2% deposit! In this episode, we break down the First Home Guarantee Scheme, an incredible opportunity for first-time buyers to enter the property market sooner. Learn how to qualify, navigate eligibility criteria, and maximize benefits like avoiding lender's mortgage insurance. Whether you’re ready to buy now or just starting to plan, this guide has all the tips you need to get started.
Need help navigating the home buying journey? Get a free pre-approval and explore your options with Hunter Galloway – a trusted mortgage broker for homebuyers across Australia. Call 1300 088 065 or visit huntergalloway.com.au
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Transcript
Can you own a dream home with a $10,000 deposit?
00:00:00
Speaker
What if I told you that owning a dream home could be possible is just $10,000? Sounds crazy, right? Well, I'm gonna explain how exactly you can buy a home today with as little as 2% deposit. I'm talking about the first home guarantee scheme, a game changer for first time home buyers.
Introduction to the podcast and the Australian housing market
00:00:15
Speaker
I'm gonna break down exactly what the home guarantee scheme is, how you need to be eligible, how to apply for it, and some tricks you need to know to get the most out of it.
00:00:24
Speaker
Welcome to the Buying Your First Home Podcast, your personal guide through the Australian housing
How to financially prepare and choose the right neighborhood
00:00:29
Speaker
market. Here we tackle the big questions and the small details that come up when buying your first home. From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips. So let's take the first step towards unlocking the door to your new home.
How does the First Home Guarantee Scheme work?
00:00:49
Speaker
Let's face it, when buying a home, the deposit is usually the biggest hurdle. 20% just feels like an impossible amount, and especially when you can see the way property prices have been going the last couple of years. And previously, if you managed to scrape together 10% of the deposit, there'd be lenders and mortgage insurance. I want to have insurance that's there to protect the banks. And this is where the home guarantee scheme comes in. It's a government scheme basically saying they're going to back you and support you if something goes wrong. Essentially, the government becomes your guarantor. So how does the home guarantee scheme work?
00:01:15
Speaker
The first home guarantee scheme allows you to buy with as little as a 5% deposit or if you're single parent, 2%. So imagine this, you're looking for a $700,000 home and normally you'd need a $140,000 deposit. That's 20%. With the scheme, you only need $35,000, a 5% deposit.
00:01:30
Speaker
Not only this, you avoid paying lenders mortgage insurance, which could be over $30,000 in extra costs. With the way the market's gone, it means you could be moving into a new home years before avoiding all those price escalations that have happened over the last couple of years.
Who is eligible for the First Home Guarantee Scheme?
00:01:43
Speaker
Now, there is certain eligibility criteria. So before you start choosing paint colors and planning a housewarming, there are a couple of things you need to be eligible for to qualify for the scheme. There's always going to be some strings attached, right? First things first, you need to be an Australian citizen, New Zealand citizen or permanent resident.
00:01:56
Speaker
So it's eligible for most people living in Australia, except if you're a temporary resident. If you're a temporary resident or a student visa, you're potentially not going to be eligible for this home guarantee scheme and until you get your PR. There are also income limits on how much you can earn in the financial year. If you're a single applicant applying, you only need to be earning less than $125,000 a year. Couples can earn a combined maximum income of $200,000. That's your taxable income, by the way.
00:02:19
Speaker
I had a few situations where I've had clients that are pretty close to this buffer, so if that's the case, have a chat to your accountant and see if you can do contributions to your first home super saver scheme, or if there's any other things you can do to make sure your income stays within these maximum limits. Because unfortunately, a dollar over the $200,000 is a couple or $125,000 as a single means you're completely ineligible for the scheme and that you have to pay the lender's mortgage insurance.
00:02:41
Speaker
The third criteria is, well, it's called the first home guarantee scheme for a reason. So it's generally required to be your first home or you're going to be eligible if you haven't owned a property for more than
What property types are eligible and how to apply
00:02:51
Speaker
10 years. This is a really good scheme if you've owned a property 10 years ago. I've had a couple of clients that have been divorced, unfortunately, and they've been able to come back and still get back into the scheme and get onto the property ladder.
00:03:00
Speaker
There are also some savings requirements depending on the bank. So some banks will require you to have at least 5% genuine savings. So in that $700,000 example before, they want to see that you've saved up a $35,000 over at least three months. There are a couple of ways around this. I had a few lately where people have had an inheritance.
00:03:18
Speaker
Unfortunately, family members pass away and they've given them money. We can potentially use a rental ledger and say, well, Jaden's been renting for the last six months. He would have otherwise been saving if not for you how much the rent cost is, and we can get around the genuine savings requirement that way. Or there's yeah a handful of banks to that will accept a gift or inheritance as genuine savings. There's a couple of ways around. Hit us up. We can explain that more if you're situations like that.
00:03:41
Speaker
Property eligibility. All right, so we've covered citizenship, income and the somewhat flexible first home buyer rule. What about the property itself? The good news is with the first home buyer guarantee scheme, existing homes, new builds and house line packages are eligible. So it doesn't need to be a brand new property. It can be one that people have lived in before. It works either way.
00:04:00
Speaker
But there are a couple of catches depending on your state. There's going to be maximum property caps like imprisonment at $700,000, Melbourne $800,000, Sydney $900,000, and it has to be primary residence. So you need to be moving in and living in the property. So it's no good if you're looking at buying a rent vesting sort of situation. If I'm living and working in Brisbane and trying to buy a property in Adelaide, it's not going to work. You need to be moving in there and living in there within six months.
00:04:23
Speaker
The question I usually get asked on this is, well, what happens if there's currently a tenant in there? Can I kick them out? No, you can't. Generally needs to honor an existing tenancy that's in place. But the good news is if the tenant says moving out three months after you settle, that's still cool as long as you move in there within six months of after you take over ownership after the settlement.
00:04:40
Speaker
Now there are limited
Are there any limitations and variations in the scheme?
00:04:41
Speaker
spots in the scheme. So every year there's 35,000 spots available nationwide from the 1st of July. It's based on the financial year. And they do go quick. Last year they didn't actually completely go. There were still some left over at the end of the financial year. The year before they did miss out, there were fewer spots then though. From what we're seeing now, there's still heaps and heaps of spots. It shouldn't be an issue with securing one. Just speak to a broker to help you make sure, get your name on the list to ensure that you don't miss out.
00:05:04
Speaker
So this home guarantee scheme does have a couple of different flavors depending on where you live and your situation. So there's the regional first home buyer's guarantee scheme, which is pretty much the same scheme. It's the 5% deposit, the income criteria is still there, but the catch is it's only available in a regional area. And generally with the regional scheme, you need to have lived in the regional area or nearby for at least 12 months before applying.
00:05:25
Speaker
I have seen some banks have flexibility around this if you're relocating for work so have a chat to your broker or we can explain how that process can work a bit more smoothly. There's also the family home guarantee scheme. This one's designed specifically for single parents or legal guardians with at least one dependent child and this is the one that lets you get into the market with a 2% deposit. The challenge here is you still need to meet that income criteria so being able to buy a property over $5,600 on $125,000 salary can be challenging. Have a chat to your broker and we'll see what's possible in your situation. Things like potentially closing your hex, credit cards, et cetera, can help bridge the gap there and get you something that's within the price range that you can afford. But how does the application process work itself?
00:06:05
Speaker
This is where at Hunter Galleries, your mortgage broker, we can help you through this process. We're really familiar with the home guarantee process, the pre-approval application process and where it fits in with everywhere. Step one is really confirming your eligibility, making sure you tick all the boxes. Your broker can help you through this. There's also a first home guarantee scheme guide. That's pretty much a tick box thing. It's on their website. You can walk through it right now. I'll include a link below to make sure it's all hunky-dory. It's all, you're going to meet all the criteria. Step two is choosing a participating lender. So not all banks participate in the scheme like ING, ANZ, Suncorp, just picking some random ones. Don't actually have availability in the scheme. So if you go to ING for a pre-approval with a 5% deposit, that they're going to help you out, but you're going to pay lenders mortgage insurance compared to say, NAB, CBA, OZY, some small lenders, they have the home guarantee scheme.
00:06:50
Speaker
This is where a broker can help you out because we can look across the market and say, well, here's you know the 25 participating lenders. Here's where your eligibility sits. Your borrowing capacity will vary between lenders and even your income situations. If you've been casual for six months, if you're a maternity leave, these things can all factor in and make a big difference when you're looking at borrowing options.
00:07:07
Speaker
We'll help you look across the lenders and then determine which one's going to meet your criteria. The next step is the paperwork. We'll help you through that process. Get your pay slips, your bank statements and everything and putting everything under the bank forms to apply for the formal pre-approval. And that's the next step in the process, getting the pre-approval.
00:07:23
Speaker
We'll apply through that specific bank for pre-approval. They'll say, yep, we're happy with your pre-approval for $300,000 or whatever it might be, and then apply for the home guarantee allocation. This is where you get allocated a home guarantee spot for up to 90 days. That's yours. That means you're one of the 35,000 people that can go out there, buy a home and have confidence that you're going to get a home guarantee spot.
00:07:42
Speaker
And this becomes the fun part. This is when you can go outside, house hunting, find a home. If you don't find a place from the 90 days, that's OK. It can get extended or if you you completely need another three months, you can cancel that spot and reapply. Like I said, there's generally a lot of availability at this time of the year, it depends when you're applying. If you're applying in the beginning of June, when it's about to reset in July, have a chat to your broker, just make sure there's definitely spots available. That's when there might be a shortage. But like I said, based on the previous financial year, it wasn't a problem. We didn't run our spots at all.
What are the downsides and additional schemes available?
00:08:09
Speaker
Now, it all sounds pretty hunky dory, right? You get to buy a home, 5% deposit, the government goes to your guarantor, you save lenders mortgage insurance and get in the property market. It's all good with good, but there are some downsides and caveats to the scheme. So let's go through that just to make sure you understand all the pros and the cons with this. Now, the first limitation is restrictions on loan changes. One thing a lot of people don't realize is you can't really make massive changes to your home loan while you're on the home loan guarantee scheme. So in other words, if you want to refinance, if you want to do an increase to the loan, a top up, you're going to be a little bit limited because you have that government guarantee in the background. So let's say you bought a property today for $500,000. In a year's time, you want to do a loan increase of $10,000, but the property is still worth $500,000. There's not much you can do. The bank will have to refinance your loan and you'll pay lenders mortgage insurance on there.
00:08:52
Speaker
But in the same circumstance, say if your property has gone up from $500,000 to $800,000, you can easily refinance your loan then to another lender, remove the guarantee and avoid paying lenders mortgage insurance. So it all just depends on the property values at the time. But keep that in mind, you can be a little bit limited in the short term if your property values don't increase. It's much the same as if you use a parental guarantee.
00:09:13
Speaker
you need to wait till property values increase or your loan decreases, be able to move that loan around. You can still change your loan, so you can still go to a fixed rate, you can still split the loan and do the same as long as you're not increasing or varying the loan amounts. The other limitation is you need to be living in the loan. So a common thing I'll say is you might buy that home, live in it for 12 months and potentially move out in terms of investment property. This is where technically you're breaching the first home guarantee Terms, if you look at the actual government website, it says as soon as the property stops being your home, you need to actually remove the government guarantee. So have a chat to your broker about the practicalities of this and how it needs to work. Specifically, the duration is guaranteed. The government guarantee will stay there until the property is sold, potentially says when the homeowner moves out. The loan is refinance or the loan to value ratio falls below 80%.
00:09:57
Speaker
So there's a lot of pros, a few cons, but really manageable if you're planning on living in that property for a couple of years. And while the home guarantee scheme is amazing, there's a couple of other things that can help you get into the market. There's the first homeowners grant. The first homeowners grant is a one-off payment that's made if you're building or buying a brand new home that's never been lived in. Depending on the state, in Victoria, it's usually $10,000. In Queensland, it's up to $30,000 at the moment. So it can be a big one, but like I said, the restriction is it has to be a brand new property off the plan or that's just been constructed, which can be tricky in the current market. Next up is stamp duty concessions. This is the other one that is really helping people get in the market. Depending on where you live, the stamp duty is completely waived if you're first home buyer. So if you're in Queensland, for example, up to $700,000, you pay zero stamp duty. So you can actually use these two things together. You can use a stamp duty concession, pay no stamp duty up to $700,000 in Brisbane, for example.
00:10:46
Speaker
and the home guarantee scheme buying with a 5% deposit. So you're saving almost $40-50,000 in avoiding lenders mortgage insurance and the stamp jig in session. It's pretty huge. The last one I'd recommend you look at is the first home super saver scheme. This is a great scheme if you're thinking about buying in the next probably six plus months. The way it works is you set up an extra contribution to your super through your work generally and that savings will go towards your first home. The benefit of putting in your super is you pay a little bit less tax so at the end of the day you're gonna be saving more money quicker and paying less tax that'll go towards your home. As I briefly mentioned before it can affect your taxable income when you withdraw this first home super saver money so have a chat to your accountant or taxation professional just to make sure you're aware of all the pros and cons before committing to that scheme.
Why seek professional advice?
00:11:28
Speaker
So there are heaps of options available if you're looking at buying your first home in Australia either in 2024 or 2025 and it can feel pretty overwhelming. You might be, well, am I eligible for that? Was my income enough? At the end of the day, knowledge is power and the more you know, the more we can help you educate you is going to be better. So if you're considering using the first home guarantee scheme, don't do it alone. At Hunter Galloway, we've helped hundreds of people navigating this scheme and many others all across Australia.
00:11:53
Speaker
We can assess your eligibility, give you advice and look at what's going to be best in your situation. So if you want a free review, look at what's possible, if you're looking to buy in today or even in the future, just hit us up at huntergalloway.com.au. We'll do a free assessment and see what's available and what's possible for you. Please hit that subscribe button. Give us a like, even comment below. Which scheme are you going to be aiming for? When are you hoping to buy at home? We'd love to know. And if you need any more help, like I said, hit us up at huntergalloway.com.au. Thank you so much. And until next time, I'll see you later. um