How to get one of 7000 first home grants

This weekend another 7000 places are available for the  federal government's first home loan deposit scheme aimed at making it easier to purchase or build a property.

For those who can’t organise their applications in time – or who miss a spot because of the large numbers applying – another 10,000 grants will be made available from July.

From Saturday 27 lenders, including CBA, NAB and 25 smaller lenders, will be submitting the second tranche of 7000 applications to the federal government for approval.

The first tranche of 3000 were launched at the beginning of January and were filled in less than two weeks.

Eligible borrowers will be able to buy a house, apartment or a house-and-land package with a deposit from between 5 and 15 per cent of the property’s value, compared to the usual 20 per cent, without taking out lender’s mortgage insurance.

This means a home loan of $570,000 on a $600,000 property will save the buyer about $25,700 in mortgage insurance, according to Mortgageport, the only approved non-bank lender in the scheme. In this case, the buyer has a $30,000 deposit rather than the usual required $55,700.

“But it is not an easy system to navigate,” warns Anita Marshall, managing director of Advanced Finance Solutions, a mortgage brokerage, which has successfully applied for borrowers' grants.

The numbers of first time buyers likely to apply means getting a grant will be like winning the lottery.
— Chris Foster-Ramsay, principal of Foster Ramsay Finance

Marshall says compared to stamp duty reduction or concessions offered by most state and territory governments (which typically involve filling in a form and providing details of contract of sale and title deeds), the process is complicated.

“The numbers of first time buyers likely to apply means getting a grant will be like winning the lottery,” adds Chris Foster-Ramsay, principal of Foster Ramsay Finance.

How it works

Applicants need to first choose a loan from a lender on the scheme's panel that offers the rates, terms and conditions that best meets their needs. It has to be a principal and interest loan. Investors are not eligible

Prospective borrowers should gain pre-approval for their loan from the lender, which will involve providing identification, age, proof of income, a prior property ownership test, proof of deposit and intention to be an owner-occupier. They can also apply through a mortgage broker.

Applicants can apply through a bank without pre-approval, but if they secure a place on the scheme, there are only 14 calendar days, to have finance pre-approved.

If they do not get finance pre-approval from their bank within 14 days,  they drop out of the queue and have to re-apply.

There are also some differences between the criteria set by the National Housing Finance and Investment Corporation (NHFIC), which is overseeing the scheme, and those typically required by a lender, according to Teachers Mutual Bank, which is one of the approved banks.

For example, the deposit scheme is not open to permanent residents who are not Australian citizens, whereas most financial institutions will provide a loan to permanent residents, subject to responsible lending criteria.

Further, additional paperwork is required such as the previous year's notice of assessment from the Australian Taxation Office, which some lenders may not need.

Strict timeline

Successful applicants then have 90 days to fund a suitable property or they drop out of the scheme and have to reapply.

Once found and a contract is signed, the lender will update the spot and hold it open for another 30 days. The purchaser then has 90 days to settle the loan and complete the deal.

Low interest rates, pent-up demand and fear of missing out because of rising prices are contributing to strong demand among new buyers, particularly in Melbourne and Sydney, according to buyers’ agents.

Cate Bakos, a buyers’ agent, says many first time buyers could find it difficult to find the right property in the time available.

“There is a stock shortage plaguing first time buyers,” Bakos says. “We are seeing an increase [in properties coming on to the market] but quite a few are attracting high prices because of strong demand. In many cases, prices are exceeding buyer expectations.”

She says demand for properties in the inner ring around Melbourne costing around $600,000 is “very strong”.

Price caps

Maximum property purchase prices for the scheme vary between cities. For example, Sydney is capped at $700,000, Melbourne $600,000, Brisbane $475,000 and Adelaide $400,000.

Controversy about poor construction and flammable materials used in high-rise buildings is pushing up demand price and prices for older, lower-rise boutique blocks, which are popular with first time buyers, Bakos adds.

Under the scheme, buyers must also intend to move into the property as their principal place of residence, typically within six months of settlement.

First time buyers are defined as those that have not owned or had an interest in a residential property, either on their own or jointly.

There are 5000 places in the 7000 tranche available for customers of non-major banks, such as Teachers Mutual Bank with the remainder for the two majors.

The staged release is intended to enable buyers with the opportunity to gather the necessary financial information to support their application.

Who's applying

According to NHFIC analysis, the geographic spread of the first tranche was broadly in line with the populations in cities and towns around the country, except for Western and South Australia where there are competing state schemes.

Those eligible include singles with a taxable income of up to $125,000 a year or couples with a combined income of up to $200,000. Couples must be married or in a de facto relationship, which means siblings, a parent and child or two friends buying together are ruled out.

The median taxable income at the pre-approval stage is just over $68,000 for singles and just over $108,000 for couples, according to NHFIC analysis of the first tranche. About 75 per cent are 35 years or younger but some are older than 50.