With the property prices consistently growing each month, single parents may be feeling the dream for homeownership is out of reach.
We understand saving up for a deposit on a single income can be extremely challenging, especially with the effects on the economy caused by COVID-19.
According to the recent article from news.com.au, homeownership rates were lower for single-parent households. “Half of all single-parent families” rent and don’t own their property in comparison to families with dual incomes.
With the recent news of the 2021-2022 Federal budget, the government has designed a tailored made scheme to provide a lending hand to eligible single parents. This is known as the Family Home Guarantee
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What is the Family Home guarantee?
The Family Home guarantee is a scheme that allows eligible single parents to purchase property with a deposit of as low as 2%, with the help of the government guaranteeing the remaining 18%. This loan can be used to purchase an existing property or build a new one.
Family Home Guarantee eligibility
Limited to 10,000 places, which will be spread over 4 financial years – equating to 2,500 spots per year for eligible single parents.
Applicants must be 18 years old and older, with their annual income being capped at $125,000 per household.
Even participants who have previously owned a home can apply for this scheme. From July 1 2021, this scheme is available to assist single parents looking for a home loan with a deposit of as little as 2%.
How do I apply for the scheme?
Single parents looking to apply for this scheme will need to apply via the National Housing Finance and Investment Corporation.
This information can be found on the NHFIC Website.
Once successful, you will need to apply for a home loan with a lender that is partaking in the following scheme.
What are the advantages and disadvantages of the Family Home guarantee?
Advantages of Family Home Guarantee
Avoid Lender’s mortgage insurance
Generally, borrowers are expected to pay insurance to their lender when their deposit falls below 20%, and this amount can equate to thousands of dollars depending on the value of the property.
Through the FHG, single parents can see the remaining portion of their deposit being covered by the government.
Improve your home loan eligibility
The most significant advantage of this scheme is the benefit it provides parents in boosting their chances of gaining home loan approval. Most lenders require borrowers to contribute a hefty deposit to secure their mortgage.
Luckily the FHG allows the government to act as a guarantor on their deposit up to 20%, increasing the chances of single parents seeking approval on their home loan.
Disadvantages of Family Home Guarantee
Loss of home equity
Purchasing a home using a 2% deposit might have its benefits but with that being said, there are drawbacks to such a scheme. If the value of your property, were to go down, then your debt that you owe to the lender will be more than the actual property value itself.
Higher interest rate
For those that apply for the 2% deposit scheme, this means they will technically be borrowing up to 98% of the loan. The smaller your initial deposit, the more interest you will be paying on the loan and equally higher loan repayments.
It’s important to keep in mind that the Family Home Guarantee is only a federal policy used to support single parents. If you’re unable to meet your repayments, then the government will not be able to help you. Ultimately, leaving you to sell the property so the lender can recover the debt.
Other Federal Schemes available
Luckily for first home buyers looking to enter the property market, there are other options available from the Federal government.
The First Home Super Saver Scheme also exists to support first home buyers by allowing voluntary super contribution withdrawals.
Depending on the state or territory you reside, there are different schemes available to you. Including first home buyer schemes and stamp duty reductions or exemptions.
For any other lending enquiries, contact our team of lending specialists at Abacus Finance today! Will get back to you as soon as possible to help make your dreams of homeownership a reality.
The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.