Home Loans for First Home Buyers NSW

Buying your first home can be daunting. Taking the leap from renting or living with parents to becoming a mortgage holder often means a change in lifestyle and a commitment to a long-term goal of building wealth through property.

The rules and regulations change from state to state. Generally all states recognise that it isn’t easy to break in to the home market and offer incentives for owner occupiers to assist. There are also federal government assistance schemes in some cases.

In NSW the main benefit is stamp duty waiver and stamp duty concessions. As a first home buyer for owner occupied property in NSW you may pay zero stamp duty for purchases up to $800,000 and reduces stamp duty for homes between $800,000 and $1,000,000.

In NSW first home owners can save up to $35,500 in stamp duty using this scheme.

For first home owners often the biggest hurdle is the deposit. The most useful assistance here is the First Home Buyers Guarantee (FHBG). Generally the banks want you to have 20% deposit plus pay for your stamp duty with your own funds. For many first home buyers this is out of reach. So the banks introduces the idea of Lenders Mortgage Insurance (LMI). This is a one off insurance premium that protects the bank (not you), in the event of loan default. As a rule LMI is approximately 2% of the home price and is added to your home loan.

There are some ways first home owners can avoid paying LMI. Some of the best options include:

Accessing the FHBG Scheme. Not all lenders offer access to this benefit and banks differ in how they apply it. However the main points are:

You only need 5% deposit and pay no LMI. The government guarantees your loan.

Not everyone is eligible. You must be a first home owner for owner occupied property, singles earn less than $125,000 and couples under $200,000. There are also maximum purchase price limits that vary by location. In Sydney and Regional Centres for example the maximum home purchase price is up to $900,000 and for rest of the state up to $750,000.

Must be an Australian citizen or Permanent Resident.
First home buyer, or not held an interest in Australian property for at least 10 years.
Minimum deposit 5%

Another popular option is often referred to as the “bank of mum and dad”. This is becoming increasingly popular as parents retire and downsize they may have excess cash, or sometimes they have a lot of equity in the family home or investment properties that can be used to help.

The first option is straight forward. Parents can gift their child cash to assist with the deposit for a home purchase. As a first home owner, if you have less than 15% deposit including the gift, it is a good idea to have the gift funds in your bank for at least 3 months before applying. This is to ensure you qualify for what the bank calls genuine savings. Genuine savings refers to money that you have saved over a period of time and can demonstrate your capacity to retain the savings and not dip into it to cover expenses.

If you have at least 15% deposit most lenders will accept a Gift Letter from parents and then request the funds be in your account in time for home settlement.

The second popular option is for parents to act as security guarantee. There is some risk to parents in doing this and it is important they get independent financial or legal advice. The Guarantor does not pay the loan and is not financially assessed. Their role is to put up a portion of their property to secure the first home owners purchase.

As an example. If the first home buyer wanted to purchase for $800,000 they need 20% to avoid LMI. This is $160,000. If they have $50,000 saved this means the bank will take a Guarantee over the parents property of remaining $110,000. This is the maximum loss the Guarantor can suffer. If the first home owner defaults on the loan, and the bank suffers a loss on the property when they sell, the Guarantor is liable for the loss up to limited Guarantee.

A good way to protect your Guarantor is to have your personal life insurances and income protection in place. This means if something happens to you where you cannot work, the personal insurances mean you can pay the mortgage and protect the Guarantor.
The Guarantor can be released once the first home owner has built up 20% equity in their home. This can be via paying off the home loan, and increase in property value or a combination of the two. It is common for the Guarantor to be released after 3 years.

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