In the first quarter of 2022, there were only 9,994 first-time buyers. With Sydney property prices skyrocketing, first-time buyers felt locked out of the housing market in the last two years. So, what is the first home owner grant (FHOG)?
Can you take advantage of the one-off payment to help purchase your first residential property?
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What is the First Home Owners Grant?
The first home owner grant is a one-off payment from the government to help first home buyers buy land or residential property. You must use the land to build residential property, and the home must be your principal place of residence. The maximum grant is $10,000 or less if the house value is lower.
Your new first home could be a house, townhouse, apartment, unit, or similar newly built or substantially renovated building.
You’re allowed only one grant per transaction. Therefore, if you’re jointly borrowing with a partner or friend, you’re only allowed one lot of $10,000. Moreover, it only applies to people purchasing a house for the first time. If you co-bought a property with a partner, you cannot use the grant again for another place.
If you are a first homeowner, you may be eligible for the grant to buy a new residential property or land to build. Substantially renovated homes might also be new homes. However, you cannot use the funding to renovate or buy an existing property or established home.
How much is the First Home Owners Grant?
The first home owner grant is up to $10,000. However, if you purchase a newly built home, the purchase price must not exceed $600,000. If you’re purchasing vacant land, the total cost of the land plus the building contract and other expenses must not cost more than $750,000.
Other eligible circumstances might include
- A house that has undergone significant renovations, i.e., most of the home removed or replaced.
- The vendor, builder, or tenant hasn’t lived in the home before, during, or after renovating.
- It is the first time the vendor is selling the house since the renovations.
Therefore, it won’t be eligible if the previous vendor rented out the new home or used it for short-term accommodation.
You may use the First Home Owners Grant in addition to other concessions and schemes for first home buyers.
Can I use the First Home Owners Grant as a deposit?
Yes, the First Home Owners Grant can go towards your deposit. However, the grant is rarely enough to cover a deposit in NSW, so you will also need your own savings.
For example, the average home in Sydney costs around $1.5 million. Therefore, the average deposit must be $300,000 to avoid Lenders Mortgage Insurance. While the $10,000 grant will help first-time buyers, it’s not nearly enough in itself.
If you don’t have any existing savings or cannot save the remaining $290,000, ask a parent to act as a guarantor. Guarantor loans mean you can apply for up to 100% LVR without LMI.
What are the eligibility criteria?
Follow the below guidance to determine if you’re eligible for the First Home Owner Grant (FHOG).
- Applicants must be at least 18 years or older at the time of applying. If you’re under 18, you might apply for an age requirement exemption.
- At least one applicant has to be an Australian citizen or permanent resident.
- Applicants or their partners cannot have previously received a grant from any state in Australia.
- Applicants must not have previously owned property either in Australia or abroad.
- The applicant must start living in the new home within a year of completing the eligible transaction.
- Applicants must use the home as a primary residence for at least six months within the year after settling or completing the new home.
- If applicants purchase a new home for someone with a legal disability, they must meet the residence requirements.
How do I apply for the First Home Owners Grant?
Anyone can apply for the First Home Owners Grant as long as you meet the requirements. You can submit your application form through one of the following means
- Through a financial institution or approved agent, e.g. solicitor
- Directly through the Revenue NSW website
Once you submit your application, you’ll receive a unique identification number (UIN) to track your application.
What do I need to complete the application?
To complete your application, you will need
- Proof of identity for each applicant, such as an Australian Birth Certificate, Australian Passport, Australian Drivers Licence, or Australian Medicare Card.
- You may also need a copy of a marriage, divorce, or death certificate. Or a Statutory Declaration stating your single status.
- Details of the property, such as an address, total value, and settlement date.
When will I get the First Home Owners Grant?
Depending on how you apply for the grant, you’ll receive it in one of two ways.
If you apply through an approved agent, you’ll receive the payment on the settlement date when purchasing a new house. For a building, you’ll get the grant after the first progress payment and registering the certificate of title. You’ll get the grant when you prove the home is ready to occupy if you’re an owner-builder.
However, if you apply through the NSW state government, it works differently. When buying, you’ll get the grant after registering the certificate of title. When building, after first progress payment and registering the certificate of title. Owner builders must again prove the home is ready for occupation.
What else do I need to consider if purchasing a residential property in New South Wales?
Buying a home for the first time involves much more than applying for grants. What else do you need to consider as a first-time buyer?
Applying for a mortgage
While the First Home Owners Grant will help your deposit savings, applying for your first home loan might feel overwhelming. With terms like LVR and comparison rates, it’s hard to know where to begin.
It’s good to apply for pre-approval before conducting your house hunt. With a solid idea of how much you can spend, vendors and real estate agents will take your interest more seriously. Additionally, when you find the house of your dreams, you can make an offer without delay. Speak to a Sydney mortgage broker to get the ball rolling.
Lenders’ Mortgage Insurance
Unfortunately, many first-time buyers find they have to pay Lenders’ Mortgage Insurance or LMI. Most lenders require a deposit of 20% of the property value. If you have a smaller deposit, it suggests you’re a higher risk. Therefore, lenders ask you to pay LMI to cover them should you default on a payment.
LMI is costly and can add a hefty financial burden to your home loan repayments. Consider whether you can avoid paying LMI before purchasing a property.
The lower the interest rate, the better the home loan. However, you should also consider comparison rates. Some lenders advertise low-interest rates, but the product works out more expensive when you factor in application fees and ongoing costs.
Also, decide whether you want a fixed or variable rate home loan. The former might help you budget for your first home loan. However, variable rates sometimes work out less expensive when market rates drop.
Of course, if you end up with a poor deal as a first-time buyer, you’re not stuck with it forever – remember to refinance your home loan when your finances improve.
Stamp duty is a hefty cost home buyers have to pay. Fortunately, many first-time buyers are eligible for stamp duty exemptions. In NSW, first-time buyers do not have to pay stamp duty on homes valued at $650,000. The cost of stamp duty rises on a sliding scale from $650,000 to $800,000.
You don’t have to pay stamp duty at all for new homes. Therefore, with the First Home Owners Grant and stamp duty exemptions, purchasing a new build is suitable for first-time buyers.
Building and Pest Inspections
Before moving into a property, you need to organise evaluations and inspections. After settlement, you’ll have a five-day cooling-off period to organise your finances and schedule a building and pest inspection. If the check throws up anything that puts you off the property, you can leave without needing a reason.
Similarly, a subject to finance clause allows you to terminate the sales contract without legal or financial consequences.
Is there other First Home Buyer Assistance available?
The NSW government also offers a First Home Buyer Assistance Scheme (FHBAS). Unlike the First Home Owners Grant, the FHBAS applies to established homes as well. This enables first-time buyers to purchase an existing home, new build, or vacant land for up to $800,000 without stamp duty or transfer duty.
To apply for the total exemption, the following criteria apply
- The value of the home must be between $650,000 and $800,000
- The value of your land must be between $350,000 and $450,000
You can apply for a duty concession if you meet the following
- The value of the new home must be between $800,000 and $1 million
- The value of the existing house must be between $650,000 and $800,000
- The value of the land must be between $400,000 and $500,000
To be eligible, you must
- Be an individual applicant (not a company or trust)
- Be at least 18
- Be an Australian citizen or have a permanent residency
- Not have previously owned a residential property
- Not have previously received another exemption or concession under the scheme
Should you apply for the First Home Buyers Grant?
If you’re a first-time buyer struggling to get on to the property ladder, you should take advantage of the government schemes available. While they won’t cover a full deposit for a house in Sydney, the $10,000 or stamp duty exemptions will help relieve the financial burden of buying property. Speak to a mortgage broker about your home loan options today.
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How much is the First Home Buyers Grant NSW?
The First Home Buyer Grant in NSW is up to $10,000, depending on the value of your property. It’s only available to first-time buyers purchasing a new build or vacant land up to a value of $600,000.
Do first home buyers pay Stamp Duty in NSW?
First-time buyers do not have to pay stamp duty on properties below $650,000. Moreover, first-time buyers can apply for concessions on properties above the threshold, up to $1 million for new homes.
How much deposit do I need for a house worth $300,000?
Ideally, you need a deposit worth 20% of the property purchase price. Therefore, you would need $60,000. The First Home Owner Grant can help relieve the burden. You can offer a deposit of as little as 5%. However, the lender usually asks you to pay Lenders’ Mortgage Insurance in such instances.