Understand how the Victorian Homebuyer Fund works, including eligibility requirements and your ongoing obligations.
The Victorian Homebuyer Fund is a Victorian Government initiative helping aspiring homeowners get the keys to their own homes sooner.
The Homebuyer Fund supports a shared equity scheme, where the State makes an upfront financial contribution towards the purchase of your home in exchange for the equivalent share, or proportional interest, in the property.
The State’s Homebuyer Fund contribution counts towards your deposit, this means you will only have to save a portion of the required deposit, and you won’t have to pay Lenders Mortgage Insurance. The State’s contribution does not attract interest, however, as the value of your home changes, so too will the value of the State’s share. Because you are paying back some or all of its share in your property, your repayments of the Homebuyer Fund contribution will reflect any capital gains on your home.
So, how does it work? Let’s say the home you want to buy is $500,000. As a Homebuyer Fund participant, you would be required to save at least 5% as a deposit, which is $25,000, and the state would contribute up to 25% of the total property price, which is $125,000. Aboriginal or Torres Strait Islander participants would be required to save at least 3.5% as a deposit, which is $17,500, and the State can contribute up to 35% of the property price, which is $175,000 in our example.
When you sell the property, you will repay the Homebuyer Fund its share of the property value. This may be more than originally contributed, as the State will share in any capital gains.
Let’s go over some of the eligibility criteria you must meet to participate in the Homebuyer Fund.
With an approved home loan from a participating lender, you can buy a property for $950,000 or less in Metropolitan Melbourne or Geelong, or $600,000 or less in an eligible regional location in Victoria. Please be aware you will lose your eligibility to participate in the Homebuyer Fund if your actual purchase price exceeds these thresholds in any purchasing process. This includes at auction when a successful bid is above these threshold amounts.
Your total gross annual income must not exceed $125,000 for individuals or $200,000 combined for joint owners. You must be an Australian citizen or permanent resident, or a New Zealand citizen, who is aged 18 or over at the time of settlement, and not currently own any land, or shares in a private company that owns any land, in Australia or overseas.
As long as the Homebuyer Fund owns a portion of your property, there are some things that you must do:
- live in the home as your principal place of residence
- maintain the property, keeping things in good working order
- have adequate building insurance on the property
- get Homebuyer Fund approval before making renovations that cost $10,000 or more
- get Homebuyer Fund approval before refinancing the home loan for the property
- make all payments on time, such as council rates, utilities, body corporate fees, and home loan repayments, and
- complete an annual review.
Each year on the anniversary of settlement of your property, you will need to complete an annual review to make sure you have maintained your eligibility for the Homebuyer Fund. Details of how to do this and what you need to provide can be found in your Participation Agreement and supporting documents.
You can start making repayments immediately to pay back the Homebuyer Fund’s share in your property. You can do this through refinancing, using accumulated savings, or when you sell the property.
The minimum repayment amount must be at least $10,000, and reduce the Homebuyer Fund’s share by at least five percentage points, such as from 25% to 20%. You must seek the Homebuyer Fund’s approval if you would like to pay the full amount back to the Homebuyer Fund within the first two years.
There are times when you will need to make mandatory payments. These include:
- if your gross annual income exceeds the threshold on two consecutive reporting dates
- if you have any windfall gains, such as an inheritance or a lotto win
- if your gross annual income increases by at least 10% at a reporting date after any repayment has been made, and
- if you are approved by your lender to increase your home loan as described in the Participation Agreement.
If your property is sold, the money from the sale is distributed, in order, to:
- your lender, to pay off your remaining home loan
- the Homebuyer Fund, to pay back its share in the property
- to pay any outstanding charges on your property, such as council rates, and then
- the homeowners.
So, returning to our example, you sell the property after five years. The Valuer-General of Victoria values your property at $600,000. Remember, the Homebuyer Fund owns 25% (or 35%) of your property, so you need to pass on that share of the property value after the sale. This could be more than the Homebuyer Fund’s initial contribution, as the State shares in any gains on the property. The State’s share of the sale will be 25% of the value, so $150,000, rather than the original contribution of $125,000. Your share will be 75%, which is $450,000.
You should review the eligibility criteria and ongoing requirements, including what you need to do for the annual review each year.
Then get your minimum deposit together, either 5% or 3.5%, depending on your circumstances, and speak to a participating lender to apply for a home loan compliant with the Homebuyer Fund.
If you do become a participant, you will still have to pay all costs associated with purchasing your home, often known as acquisition costs. These are things like conveyancing, legal costs, building inspections - and stamp duty if it’s applicable in your case. You’ll need to pay these acquisition costs before it’s time to settle on your property.
Make sure you read and understand the program documents, review the conditions of pre-approval, and seek financial and legal advice if required.
Apply online and read the Participation Agreement.