Your Guide To Australia’s Family Home Guarantee Scheme For Single Parents
Buying a home can be a stressful experience, especially for single-parent families who may not have the capacity to secure the 20% deposit for a home loan. The Family Home Guarantee Scheme provides assistance to Australian families that fall under this category.
IN SUM: The Family Home Guarantee Scheme is a great option for single-parent households to apply for a home loan at a lower interest rate. The guidance of a professional mortgage broker can assist in finding the right lender to ensure eligibility and ideal loan rates.
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What does the Family Home Guarantee mean for Australian property buyers?
The Family Home Guarantee is a scheme provided by the Australian Federal Government via the government’s National Housing Finance and Investment Corporation (NHFIC). Basically, the aim of this scheme is to make it easier for single parents to purchase the property they need to support their families through a guarantee that tops up the deposit paid by the buyer.
In most cases, a mortgage lender prefers a deposit of 20% of the total property value. This deposit will need to be paid upfront to secure the loan, but this can be problematic for single-parent property buyers. Home prices are increasing in Australia, with markets in capital cities experiencing the most rapid rates of growth. The median house price in Brisbane is now more than $792,000, an increase of 25.7% from last year. Even slower-growth markets such as Townsville have seen median prices rise by 6.4% between 2020 and 2021. This means single-parent families are often priced out of the market by the size of the deposit requirement.
When single parents access the Family Home Guarantee, they can acquire a home loan with a far smaller deposit, sometimes as low as 2% of the total property value. The government’s scheme will guarantee the remaining 18%, bringing the total amount up to the required 20%. This protects the home loan provider while also ensuring that single-parent families can purchase a home.
At North Brisbane Home Loans, we want to make sure that everyone has access to the home loan products they need. Reach out to our friendly and professional team to discover more about how the Family Home Guarantee scheme can benefit you.
Family Home Guarantee scheme eligibility
The following criteria must both apply to meet the government’s eligibility requirements for the family pledge:
- The applicant must be legally single, which means they do not have a spouse or a de facto partner. The guarantee is not available to single parents who are separated from their partner but have not finalised their divorce.
- The applicant must have one or more dependent children. Under the Social Security Act 1991, a dependent child is any child whose daily care, welfare and development are the applicant’s responsibility. Anyone, between the ages of 16 and 22, who receives a disability support pension may also be classed as a dependent under the terms of the scheme, provided they live with the applicant.
Single parents can still access the home loan guarantee scheme even if the child’s other parent — or another legal guardian — is also responsible for the child’s care some of the time.
In addition to these criteria, the applicant must not currently own a home. This means the Family Home Guarantee is available to first-time homebuyers or to anyone who does not currently have a freehold property in Australia, a lease on land in Australia, or a company title interest in land in the country.
Benefits of the Family Home Guarantee
The Family Home Guarantee scheme is great news for many Australian families who may otherwise have been struggling to find a home loan that they can afford on a single parent household income. These are the benefits of the scheme:
Increased access to home loans
The most obvious benefit of the Family Home Guarantee scheme is that single-parent families now have access to home loans. As of 2021, one in seven Australian families are single-parent households, which means 15% of families across the country may be struggling with a reduced income as a result of a separation or another unfortunate event. These families may struggle to live independently and may find themselves moving from rental property to rental property or sharing accommodation with family members.
The family pledge helps these families to find home loans that they can more easily afford. In turn, this grants families independence and self-reliance, and a stable address for children.
Reduced single-parent home loan payments
The smaller the deposit is from a homebuyer, the greater the risk to the lender. As a result, lenders find other ways to mitigate this risk, which usually means applying for Lenders’ Mortgage Insurance. LMI payments are borne by the property buyer and this can add a significant amount to the monthly loan repayments.
As the Family Home Guarantee reduces the risk, there is no need to apply the LMI to the mortgage. Once the guarantee tops the deposit amount up to 20%, it is above the LMI threshold and the homebuyer will not need to take out this insurance. Therefore, the monthly home loan repayments become more manageable.
Manageable risk for lenders
The reduced risk to the lender also has other benefits. If lenders are shielded from the negative effects of homebuyers defaulting on their loan repayments and receive the solid foundation of a governmental guarantee on their loan products, they are also able to better manage their costs. This results in a more stable and predictable lending market.
Lenders tend to pass increased costs on to borrowers, either in the form of fees or other interest rate increases. Family Home Guarantee mortgages help to prevent this, which in turn could keep the cost of loans low for all home buyers across Australia.
If you need an expert hand to find the right mortgage we are ready to assist you to benefit from the Family Home Guarantee. Reach out to our highly experienced team today.
Things to bear in mind when accessing the parental guarantee
While there certainly are advantages to the Family Home Guarantee scheme, there are still some things that single-parent first time homebuyers must bear in mind when they consider their options.
The smaller the deposit, the higher the loan repayments
The Family Home Guarantee essentially helps single-parent families to meet the minimum requirements to secure a property loan and to avoid paying LMI. While this can be an attractive option, as it significantly reduces the upfront costs of purchasing a property, the buyer will still have a long repayment period ahead of them.
If their financial situation allows, it is better for the buyer to reduce their repayments by putting down a larger deposit if possible. This way, there is less interest to pay on the home loan and less exposure to fluctuating rates. Of course, many single-parent families may not be able to afford this larger deposit, but it is worth considering.
There are also other methods that can be used to reduce exposure to interest rate changes, such as fixed rates which can be discussed at the time the loan application is put together.
Eligibility criteria can be strict
The eligibility criteria for the scheme is defined according to the Social Security Act 1991. This provides a fairly strict set of parameters that must be met. If the applicant is not defined as single under this Act, or if their child does not meet dependability or habitation requirements, the application may be denied.
Single-parent families are still responsible for the majority of the loan amount
Single-parent families need to remember that the guarantee is capped at 18% of the property value. Even after the 2% is contributed by the applicant, this only represents the deposit, and the remaining amount — plus interest and fees — needs to be paid, and the applicant will be responsible for this. Applicants must consider their monthly finances and cash flow as they weigh up the property purchase.
There are restrictions on property types
According to the Family Home Guarantee, all properties purchased under the scheme must be classed as residential. This may include existing houses and apartments, home and land packages, land with property building contracts, and off-the-plan houses. Other types of property purchases will not be permitted under the scheme.
Family Home Guarantee Australia: How to apply through a mortgage broker
Buyers who are eligible for the Family Home Guarantee scheme can work with our professional mortgage brokers by following these steps:
- Homebuyers must submit their application either directly to one of the lenders approved by the scheme or via an authorised mortgage broker.
- In most cases, the homebuyer will need to provide a Notice of Assessment from the previous tax year to the lender or broker. This will be sent to the applicant’s myGov Inbox after their tax return is processed.
- It is recommended that applicants gain professional advice and guidance from a professional mortgage broker before they submit their application. This helps the applicant to understand their options and gives the best chance of success.