Alex Zhao

First home buyers - not all First Home Loans are created equal.

First Home Loan (FHL) is an excellent product for eligible first home buyers, who do not have 20% deposit. Applicants get no interest margin added to their home rates, and banks even provide small amount of cashback most of the time. With the latest drop in the Low Equity Insurance charge from 1% to 0.5%, applicants also get a small increase in their borrowing capacity. However, it is not widely known that each FHL issuing bank uses their own set of assessment rules to determine how much an applicant can borrow, and the same person may get significantly different approval amount from each bank. Generally, the following aspects are key factors affecting one’s max borrowing capacity during a FHL application:

• Test rate the bank is using – higher the test rate, lower the approval amount. Each bank set this rate independently with their view of what’s a safe threshold to ensure their lending is responsible.

• How income cap is implemented – FHL has a government set income cap of $95,000 for single application with our dependent child, or $150,000 for couple/single with dependent child. However, we see banks take drastically different approach when determining what income they should use for the loan amount calculation. Some uses a hardline $950,000/$150,000 income cap, but there are also banks willing to use higher figures provided applicant’s past 12 months income was below the threshold.

• How many boarder incomes you can propose and what are the income cap & discounting rules. – some banks allow 1 while others allow 2 boarder incomes proposed for applicant’s new home.

Overall, it is not that straight forward to determine which bank provides the best FHL solution to first home buyers, and each applicant’s situation need to be carefully reviewed before choosing the appropriate lender.