How to Buy a Home with No LMI as a First Home Buyer
LMI is a one-time fee that borrowers pay to protect lenders against the possibility of loan defaults. Generally, if you’re borrowing less than 80% of the property’s value, you usually don’t have to pay LMI. But what if you’re a first-time buyer and don’t have that hefty a deposit?
Buying your first home is a landmark moment, but it comes with its own set of challenges. LMI is one of them. Here’s a simplified guide to help you navigate LMI as a first-time home buyer in Australia.
LMI waivers and government schemes
Luckily, there are specific scenarios where first home buyers can avoid paying LMI.
Here’s how:
- Professional Waivers: Certain professions, such as doctors, accountants, lawyers, etc, might be eligible for LMI waivers. It also applies to individuals who earn more than $150,000 annually. The reason? These professions and high-income earners are seen as lower risk by lenders.
- First Home Loan Deposit Scheme (FHLDS): The Australian government offers the FHLDS, where first home buyers can secure a home loan with a deposit of as little as 5%. In addition, the government acts as a guarantor for up to 15% of the home loan deposit, meaning no LMI fees.
- FHLDS New Home Guarantee: This scheme is another branch of the FHLDS, catering specifically to those purchasing new homes.
Each of these options has specific eligibility criteria, and not every lender might offer these waivers. That’s why it’s essential to do your research.
Get a free Australian mortgage assessment today.
LMI waivers for select professionals and high-income earners
Specific careers such as doctors, lawyers, and accountants are eligible for an LMI waiver. These careers are recognised as high-income, stable professions, making their loan repayments a low-risk prospect for lenders.
If your profession falls into one of these categories, or if you’re on track to earn over $150,000 annually, you may be in luck. An LMI waiver could be within your reach, making homeownership a more attainable goal.
Keep in mind, though, that LMI waivers aren’t a guaranteed benefit for all professionals. Other crucial factors, such as income level and credit history, are taken into account. Even if your earnings exceed $150,000, a history of late payments could disqualify you from receiving an LMI waiver.
LMI waivers: First home loan deposit scheme (FHLDS)
For first home buyers who may not fall into the above categories, the First Home Loan Deposit Scheme (FHLDS) and the FHLDS New Home Guarantee could be lifesavers. These government initiatives can help you secure a home loan with a deposit as low as 5%, eliminating the need for LMI.
To be eligible for the First Home Loan Deposit Scheme (FHLDS),
- You must be an Australian citizen.
- You must be over 18 years of age.
- You must never have owned or held an interest in an Australian property before.
- Your income must meet certain restrictions. For singles, the income must be less than $125,000 per year. For couples, the combined income must be less than $200,000 per year.
- The property that you purchase must be your primary residence.
- You are required to move into the purchased property within six months of purchase.
Under the FHLDS, the government acts as a guarantor for up to 15% of the home loan deposit. The best part is that this isn’t a cash payment, so there’s no need to pay it back.
Bear in mind, property price caps apply under the FHLDS, and they vary based on the state and whether you’re in a capital city or a regional centre. For example, in NSW under the FHLDS, the price cap is $900,000 for capital cities and regional centres, and $750,000 for the rest of the state.
Price caps for FHLDS New Home Guarantee 2023
| State/Territory | State Capital City and Regional Centre* | Rest of State |
|---|---|---|
NSW | $900,000 | $750,000 |
VIC | $800,000 | $650,000 |
QLD | $700,000 | $550,000 |
WA | $600,000 | $450,000 |
SA | $600,000 | $450,000 |
TAS | $600,000 | $450,000 |
ACT | $750,000 | - |
NT | - | $600,000 |
Jervis Bay Territory & Norfolk Island | - | $550,000 |
Christmas Island and Cocos (Keeling) Islands | - | $400,000 |
*Regional centres include Newcastle and Lake Macquarie, Illawarra, Geelong, Gold Coast, and Sunshine Coast.
Considerations and application process
Although these waivers and schemes can save you thousands on LMI fees, they come with considerations. For instance, the FHLDS has price caps on properties depending on their location. The government also limits the number of FHLDS places available each year, so early application is recommended.
How expats can benefit from LMI waivers as first home buyers
No LMI as a First Home Buyer can be relevant for expats in a few ways. Here are a few ways that expats can benefit from LMI waivers as first home buyers:
- Save money on their home loan: LMI is a type of insurance that lenders require borrowers to pay if they have a low deposit. The cost of LMI can be significant, so being able to avoid it can save expats a lot of money.
- Make it easier to get a home loan: Lenders are often more willing to lend to borrowers who have a low deposit if they don’t have to pay LMI. This can make it easier for expats to get approved for a loan and buy a home.
- Give expats more flexibility when it comes to buying a home: They may be able to afford a more expensive home if they don’t have to pay LMI. This can be a big advantage if they are looking to buy a home in a desirable location.
How eligibility might stop expats as first home buyers to qualify for LMI waivers
There are a few eligibility criteria that can stop expats as first home buyers from qualifying for LMI waivers. These include:
- Citizenship or residency: You must be an Australian citizen or permanent resident to qualify for most LMI waivers.
- Income: You must have a certain income to qualify for most LMI waivers. The amount of income required varies depending on the lender.
- Job security: You must have a secure job to qualify for most LMI waivers.
- Credit history: You must have a good credit history to qualify for most LMI waivers.
- Deposit: You must have a minimum deposit of 5% to qualify for most LMI waivers.
If you do not meet all of the eligibility criteria, you may not be able to qualify for an LMI waiver. It is important to check with your lender to see if you qualify for an LMI waiver and to understand the terms and conditions of any waiver that you are offered.
How to own your first home without breaking the bank
Owning your first home doesn’t have to be a distant dream. With options like professional LMI waivers and government schemes such as the FHLDS, you can make the journey to homeownership a bit easier on your pocket.
When it comes to applying for LMI waivers or the FHLDS, a mortgage broker can be an invaluable resource.
Odin Mortgage understand the intricacies of lending policies and can guide you through the home loan process. We are a leading Australian mortgage service provider for expats and foreign nationals globally.
Contact us today to learn more about how we can help you buy your dream home in Australia.
Get a free Australian mortgage assessment today.
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