The federal government introduced the first homeowners grant to make home ownership easier, and with prices on homes quite high in certain regions, first-timers often need all the help they can get to get a foothold in this exciting and massive commitment.
But how does the first homeowners grant work?
While this is a federal grant, each state is responsible for their own grants and make their own rules. They are also able to change the rules, so check what is current for your settlement date. The differences from state to state are great, so forget anything your family and friends might have told you or experienced, you’ll need to get the details about what your state offers to be sure you can meet the right requirements.
First off, let’s make it really clear that there are a number of different grants available. There is also a NSW First Home Owner Grant (New Homes) scheme, which aims to help out owner/builders and people buying homes that have never been sold before (i.e. they are sparkling new or newly renovated and previously not lived in, in their current state). This grant is designed to stimulate the building industry and make brand new homes accessible.
FIRST HOME BUYERS ASSISTANCE SCHEME – HOW IT WORKS
What we are most interested in in this article is the First Home Buyers Assistance scheme. This is open to any residential purchase in NSW to people who have never owned property before. Rather than a cash incentive, the First Home Buyers Assistance scheme provides exemptions or concessions on transfer duty (previously known as stamp duty). This includes the purchase of vacant land on which you intend to build your first home.
If you have researched the first home buyers grant before, pay close attention because there was is a revised structure introduced on 1 July 2017.
In most cases, qualifying for a first home owners grant is easy, after all this is a scheme put in place to help you out. What can get confusing is the commitment that follows. There are some post-sale requirements that need to be taken very seriously and might be a little surprising, so to clear up any grey areas and help you know with absolute clarity what you are signing on for, there’s a rundown of what you can expect from a first home owners grant in NSW on the NSW Government Revenue page.
Firstly, don’t get excited about this putting a dent in your mortgage, it won’t make any difference to the amount you pay for your new home, be it a private sale or auction. What the first homeowner’s grant does is reduce the add-ons.
Once you purchase a property a whole heap of other costs instantly pile on, including transfer duty. The duty is high, so high that it can create some serious ouch factor if you are caught unawares, and when you are fighting hard and saving hard to get that deposit in place, it can mean the difference in securing a home loan.
WHAT IS TRANSFER DUTY?
Transfer duty is a payment made to the government when the property settlement occurs. It’s a land ownership fee. It is calculated on either a percentage of the property’s sale price or a percentage of the value of the property (whichever is higher).
Online calculators for banks, real estate and mortgage brokers can give you an estimate, but that is an estimate only. If you really want to know how much your transfer duty will be you are best to use the official government calculator and know the exact figure of the property sale as well as the date of transaction (as different dates may fall into new scheme, rules and benefits).
To give you a rough idea of what you are looking at, the usual transfer cost on a $350,000 property is around $11,500 and a $650,000 home is around $25,000.
How much will I get?
Of course this is the most important question so we will get it over and done with nice and early.
You will get the total transfer duty covered for any home (new or existing) that is valued or purchased up to $650,000. That’s a significant helping hand.
If the home you are purchasing is over the $650,000 threshold you will receive a concession on the transfer fee. You can expect to be out of pocket at the time of settlement to the tune of about $10,000 to $20,000 for a property worth $700,000 to $800,000. Above this rate you will not be eligible for concession (if you can afford a million dollar home, you can afford some tax ;-).
If you are purchasing land to build on, you will get full costs covered on transfer duty on a property value up to $350,000, which is a handy sum of about $11,500.
Will I get cash?
No, you simply will not be required to pay the regular transfer fee to the government at the time of settlement.
Am I eligible?
To be eligible is actually pretty easy, although keep in mind that BOTH you and your partner (be it spouse or defacto) need to qualify as eligible purchasers, even if both names do not appear on the title.
To be eligible for the NSW First Home Buyers Assistance scheme you will need to be 18 years old and over, a person (not a company) and have never owned (or co-owned) residential property in Australia (even if it is in another state). There are exemptions on this if you were solely a trustee or executor on a property.
The most important part of this to which there is no exemption is that you and your partner have never previously received any support for the purchase of a first home or new home. Again, this is any state, if you previously held a property title in another state and received a grant there, you will not be eligible for the NSW First Home Buyers Assistance scheme. You really need to be aware that if your partner previously received benefits, even if you do not list them as the home owner, you will not be eligible.
Don’t be too worried if you qualify and your partner doesn’t and neither of you have ever received assistance on the purchase of a new home. There are ways around this. Try for a concession under shared equity arrangements.
What are my ongoing commitments?
Here’s where the grants get a little interesting, because it’s not done and dusted once the purchase is complete. Post sale commitments are the biggest difference between grants from state to state and will drastically impact your ability to keep your grant after your settlement so pay attention and be 100% sure before you buy that you can meet these non-negotiable requirements.
The NSW ruling is that at least one of the eligible purchasers must live in the home, as their primary residence for a continuous period of six months.
That might put a hold on your plans of using your new home as a rental property. Just be sure you have moved in within 12 months and stay for six to keep your assistance in place.
You do have 12 months from the settlement date to move in, which gives you time for renovations if you wanted (This one can be waved if one of the eligible purchasers has been or is a member of the permanent forces of the Australian Defence Force. If this is you, make sure everyone listed for the property is on the NSW election role prior to settlement.)
There can be no splits and divisions. You must purchase (and maintain ownership) of the entire property to qualify for the grant. That means you can’t sell off the back or subdivide when the settlement is completed. If you know for a fact that you need to or want to share ownership, then concessions may still be covered under the shared equity arrangements, so make your plans up front and be certain about what you want to do before you say yes.
What do I need to do?
First up is the Proof of Identity requirements. This is detailed so get it done early, it’s the last thing you want to be tackling when you are in the middle of purchasing a home, especially if anything comes back as needing more evidence. Thanks to some really extreme cases of identity theft within Australia, this is now a requirement to be completed prior to signing the Contract of Sale with your Solicitor or Conveyancer. Your incoming mortgagee will also require this to be completed.
Anything you are uncertain of, disclose full details and information on your application, even if you feel it may potentially make you ineligible. It’s not worth fibbing on your forms or gaining the grant unlawfully. Coming up with $25,000 out of the blue is a tough ask, especially when it is loaded with steep fines. The rules on the first home buyers assistance are taken very seriously with thorough investigations and audits to occur. Don’t take any chances.
There are still upfront costs you will have to cover. The transfer duty is the bulk of your upfront costs for sure, but you still need to be prepared to pay for paperwork (usually around $417 total) for the registration of mortgage, registration of discharge of mortgage and registration of the transfer document, as well as your legal fees as you are not able to submit the paperwork alone, you’ll need to hire a lawyer or conveyancer.
Even though you still need to hand over a few hundred dollars, it’s much nicer than handing over thousands. So before you make your purchase, check your eligibility and get a little respite on owning your first home.
To apply for a first home buyers exemption or concession you must do so through your solicitor or conveyancer once you have exchanged the contracts to purchase your new home (or land). Your conveyancer can provide you with the right documents for your First Home Buyers Assistance Scheme form and help ensure you have proved all the correct supporting evidence, including your purchase/transfer declaration.
For more information or to know about all the cost involved in the settlement of your new home, please contact our office.