Everything you need to know about the single parent home loan scheme

Article by Johnson Damian for Your Mortgage.

The Australian government’s Family Home Guarantee Scheme aims to support Australian single parents in securing a home loan.

Under the scheme, eligible borrowers can purchase or build a new house with a deposit of as little as 2% of the property’s value from July 2021 to June 2025.

How do I apply for the Family Home Guarantee?

The National Housing Finance and Investment Corporation (NHFIC), which administers the scheme through participating lenders, predicts that there are around 125,000 buyers across the country that satisfy the eligibility criteria – but only 10,000 will be granted the deposit assistance over the scheme’s four-year period.

Moreover, there are strictly legal and documentary requirements that you must satisfy – but don’t let these discourage you.

Here’s a step-by-step guide to help you through the application process.

1. Review the eligibility criteria and prepare supporting documents.

You must be an Australian citizen of at least 18 years of age. Permanent residents and current property owners are not covered by the Family Home Guarantee Scheme.

Additionally, you must be a single parent with at least one dependent child. You should be able to prove that you are the natural or adoptive parent of the child, based on the definitions in Section 5 of the Social Security Act 1991.

Lastly, your income for the previous financial year should not exceed $125,000, excluding child support payments. For this, you need to get your Notice of Assessment via myGov’s online service as a supporting document.

2. Find a participating lender.

NHFIC does not directly process applications. Instead, you need to apply through a participating bank or non-bank lender through one of their loan products. Alternatively, you may apply through a mortgage broker (us!) or an authorised representative from one of these lenders.

3. Choose an eligible property to purchase.

You may buy an existing house, townhouse, apartment, or a house and land package under the single parent home loan scheme.

NHFIC also accepts borrowers who wish to purchase a vacant land and a separate building contract, similar to the government’s First Home Loan Deposit Scheme (FHLDS).

Additionally, your prospective home should not exceed the property price threshold designated for each state and territory. In New South Wales, the threshold is $600,000, and $800,00 for Sydney and regional centres.

4. Get a home loan pre-approval from your lender.

A pre-approval or conditional approval means that the lender has agreed to lend you money toward the purchase of your home. It’s not yet a guarantee or final approval, but it provides an indication of the property price that you can afford.

Before reaching this point, you should conduct extensive research on the affordability of your prospective home.

Moreover, keep in mind that the maximum loan agreement allowed by the Family Home Guarantee is 30 years. You can use a monthly repayment calculator to have a good picture of your regular expenses for the following years.

Your lender will examine your assets, loans, and regular income before granting a pre-approval. They will also likely ask for the postcode and type of dwelling that you intend to buy.

5. Purchase your family home.

Finally, it’s time to buy your home. NHFIC guarantees up to 18% of your deposit, so you should have at least 2% of the total property value or as indicated in your loan agreement.

The Family Home Guarantee Scheme also has an owner-occupier requirement, which means you should move into the property within six months from the date of settlement.

Should I apply for the Family Home Guarantee Scheme?

You can save thousands of dollars by avoiding the lender’s mortgage insurance (LMI) since the loan is backed by the government. However, it comes with some potential drawbacks.

For instance, you’ll have a high loan to value ratio (LVR) which may result in negative equity. The loan amount is larger than conventional mortgages as well, so an increase in interest rates will significantly impact your monthly repayments.

Furthermore, the Family Home Guarantee Scheme does not cover expenses on top of the home loan itself. These include mortgage fees and stamp duty.

Is the Family Home Guarantee Scheme compatible with other grants?

To further reduce your costs, you may consider qualifying for rebates and stamp duty concessions offered in your home state or territory. Using a stamp duty calculator can help you forecast your expenses and savings.

For example, eligible single parents may use the Family Home Guarantee with their state’s First Home Owner Grant (FHOG). Depending on the location, the FHOG awards borrowers with a lump sum financial grant or a stamp duty discount.

However, the single parent home loan is not compatible with the FHLDS, since this is a similar program under NHFIC that is designed for low deposit buyers.

Is the scheme applicable to investment properties?

No, the Family Home Guarantee is not designed for investment properties. Only buying an established house or building a residential property for yourself are covered by the scheme.

Read more:

 Do you qualify for the single parent home loan scheme?

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