Buying a house

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Margin is debt. You borrow capital from your broker to buy more assets, in most cases stocks.

This gives you leverage. You are making a bet that your returns on the investments you buy on margin are going to be greater than the interest rate you pay your broker for the privilege, net of commissions.

If they are, you pocket the difference. If not, then you have to make your broker whole.

Since the broker uses the assets you already own in your account as collateral to satisfy your margin, investing on a margin is very similar to buying a house on mortgage.

The only difference being that when you invest, you do not have to make monthly margin payments and the broker is generally not too worried if you ever make any effort to reduce your margin as long as there is sufficient value in your investments to cover for it.

The similarity does not end here. Taking on a mortgage to buy a house can be good, or bad. It depends a lot on who, how, why, and the level of financial savvy of the borrower. Investing on margin is the same way.

If you understand how it works, use it judiciously, and can manage your risk well, it can help you generate nicer returns. On the other hand, if you are not disciplined enough, or misuse it or get carried away chasing a hot stock, it can drain your account dry.

When to Not Use Margin?

In this case, I think it makes better sense to eliminate the situations where margin should not be used before we talk about the situations where it makes sense to use it. Sure, there are always exceptions, but these principles hold true for most common investing scenarios.

Principle #1: Do not use margin to buy interest-bearing assets that yield lower than your margin interest

Yes, you can buy bonds of all varieties, treasuries and many other assets that throw out reliable yield. Most of the time, because of the perceived safety of these instruments, the brokers will allow you to lever up more than 1x, which means that $1 of your collateral might allow you to buy $3 of municipal bonds (as an example).

Theoretically, if the yield on this muni is more than 1/3rd of the interest rate on your margin, you could possibly make a few basis points of supposedly “risk free” income.

The problem arises if the interest rates move and the slim window of profit can quickly flip into a cash flow drain. Besides, anything that complicates your investing so much for returns so small is not worth doing.

Principle #2: Do not use margin to buy stock in a utility company, REIT, MLP or other type of Trusts

Similar principle as above. Any stock that is mostly used to generate a current income in form of dividends is not a candidate to buy using margin. In most cases, the yield will be lower than your interest rate, and capital appreciation may not be enough to make up for it.

If you are buying stocks for income, you are likely a conservative investor and margin just adds more risk that you should not carry.  Dividend investing is not a bad thing; just not recommended on margin.

Principle #3: Do not use margin to make a down payment on a car, boat, or a house

Just because you can borrow money from your broker to make a down payment does not mean you should do it. In this case, you are borrowing money which will become a basis for more debt (car loan, mortgage, etc).

If you have to do it, that means you are not financially strong enough to buy or invest in these assets. Multiple levels of leverage are financial insanity and can come back to bite you much sooner than you think.

But using margin is not all bad if you know how.

When and How to Use Margin

Too much debt kills, but a little debt can go a long way towards giving you financial flexibility. However, it is important to use margin as a tool only when you have a good investment that you are not able to get in otherwise. Let’s take a few examples

Example #1: A great investment opportunity arises and you are temporarily short of capital

It often happens that your next contribution to your investment account is a few days or perhaps a week away, and it can easily cover the amount you are going to invest in this opportunity. Assuming this is not a hot tip stock, and you have satisfied yourself of the merit of the investment, go ahead and use margin to start your position. In a few days you will send in more cash and your margin will be covered.

Example #2: Using margin as an emergency fund

If you have a need for cash that cannot wait – for example, an unexpectedly large tax bill, where the consequences of not paying full taxes on time are greater than the interest on the margin, it is okay to go ahead and borrow on margin. In many cases, you may need time to figure out which investments to sell to cover the margin, or perhaps you can do it over time with your income.

Example #3: Year-end tax planning

Let’s say you have a few investments you want to sell so you can redeploy capital in other more attractive investments. If your current investments have significant capital gains, you may want to wait for the new year to sell them so as to not incur additional taxes in the current year.

However, due to traditional tax selling by investors and funds, many investments become quite attractive towards the year-end, which you may want to take advantage of.

Proper use of margin will allow you to bridge the temporary capital gap. For a disciplined investor, margin should always be used in moderation and only when necessary.

When possible, try not to use more than 10% of your asset value as a margin and draw a line at 30%. It is also a great idea to use brokers like TD Ameritrade that have cheap margin interest rates. Remember, the margin interest compounds as long as you keep the margin open.

About the Author: Shailesh Kumar writes about stocks and value investing at Value Stock Guide, where he offers individual stock picks and ideas to registered members. Subscribe to his free stock newsletter for investment ideas that you can use to research further.

No matter the type or amount of investment GoodFinancialCents.com is here to help. Whether it be investing $20,000 or how to invest $500000, we want to help you make the most of your investments!

Source: goodfinancialcents.com


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Source: mint.intuit.com

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Posted on: June 14, 2018

The busy summer season is here. The housing market tends to pick up during the summer, but with how hot the housing market has been lately, it’s hard to imagine things moving quicker.

With how predictable the housing market has been during the summer during recent years, it would be easy to guess that 2018 won’t be any different. However, the current housing market is in a much different environment than it was just a few years ago.

There are plenty of home buyers and homeowners looking to either buy or sell this summer – and it could end up being an excellent decision for both.

Here are housing trends to know for this summer:

Click to check current VA rates.

A hot housing market

The housing market has been on fire lately with home prices rising across the country. While some markets have been slower than others, the overall sentiment is that this is an incredibly strong housing market.

Because the summer is generally the busiest time of the year, there should be no reason to expect anything different. Home buyers are more active in the summer for a variety of reasons, regardless of how strong the housing market is.

For home buyers in some of the hotter markets, don’t expect a huge pickup. The strongest markets don’t have much room for growth at the moment, so you should be prepared for more of the same.

Rising home prices – but not too high

Home prices have been rising steadily for years now, and they should continue to do so.

The price of homes is largely dictated by how much home buyers are willing to pay. Since the demand for housing is high, home buyers will be willing to spend more money than they were just one year ago.

That being said, home price growth might slow down in a lot of markets. According to the Case-Shiller Home Price Index, home prices across the nation rose by 6.53% year over year from March of 2018 to this year. That’s incredibly quick growth, especially considering it includes smaller markets.

That type of growth is not sustainable and it shouldn’t continue. While home prices will rise this summer, it will likely be by a smaller margin.

Check today’s VA rates.

Low housing inventory

This probably isn’t news to anyone who has been looking to buy a home for the past few years.

The national housing shortage is real, and home buyers – particularly those in dense urban areas – have been having a difficult time finding affordable housing.

Unfortunately for home buyers, this trend should continue to persist through the summer. The demand for housing typically jumps during the summer, but there’s no guarantee that housing supply will match the increase.

The good news is that housing inventory is likely becoming less of an issue. Toward the end of 2018 and going into 2019, don’t be surprised if homes stay on the market longer.

Higher mortgage rates

With economic growth occurring across the country, it would be nearly impossible to avoid higher mortgage rates.

Just last month, Freddie Mac reported that mortgage rates hit their highest average levels of the past three years. Rates are nearing even higher levels, and they should set record highs for 2018 multiple times throughout the summer.

The rise in rates is mostly fueled by an optimistic outlook on the market. The Federal Reserve has been raising rates, and this has affected every market – housing included.

Higher rates don’t always occur during the summer – in both 2016 and 2017, mortgage rates steadily declined from April through August, only to start to climb right after.

2018 is already breaking that trend. Since the beginning of April, mortgage rates are up roughly 20 basis points (0.20%). With the way the economy is moving, rates should continue to climb this summer.

VA loans continue to be the best mortgage program

While some home buyers might become worried about the cost of buying a house this summer, VA loans will continue to make it easier for veterans to purchase a home.

VA loans have consistently had the lowest rates available. According to mortgage software company Ellie Mae, the average VA loan in April had a rate of 4.63%, as compared to 4.84% for FHA and 4.80% for conventional.

Also, VA home buyers can avoid paying a downpayment entirely, something that should help them afford a home despite rising home costs.

This summer, there’s no reason to believe VA loans won’t continue to be the best mortgage program available. Anyone who is eligible and wants to buy a home this summer will likely want to use a VA loan.

Click to check current VA rates.

Source: militaryvaloan.com

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Last Updated on August 22, 2019 by Mark Ferguson

If you want to start flipping houses, it can provide a great income, but it almost always takes money to make money. You may hear stories of investors flipping houses without any of their own money, but these investors are usually very experienced at flipping or they are giving up much of their profits. Hard money lenders can allow investors to complete a flip with less money, but hard money lenders are very expensive. Using a partner or private money can also reduce the amount of money an investor needs to flip, but you may have to give up a percentage of the profits or be very well established to use these techniques.

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How much money does an investor need to flip using hard money?

There are many hard money lenders and they each have different terms and conditions on their loans. Some hard money lenders claim they will allow an investor to buy, renovate and sell a flip without any of their own money. However, most hard money lenders will only give these terms to an experienced fix and flipper with a proven record of success. The hard money-lender will require some money from the investor if they are just getting started or a share of the profits. The hard money-lender will also want to make sure the flip will be profitable and keep a very close eye on the project for any new investor.

If you are using a hard money-lender, I would count on needing at least 20 percent of the purchase price of a flip for repairs and down payment. Some hard money lenders may require more or less depending on the deal and the investor’s experience. You may be able to get the hard money-lender to fund most of the deal if you share 50 percent of the profits. Remember a hard money-lender is very expensive; rates can vary from 8% to 16% and 1 to 5 points.

Here is a video I did that shows the exact costs that various loan options cost me.

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How much money will you need to start flipping houses with a partner?

I know many flippers who use partners to help with the funding of deals. I used to work with my father on our flips; he would fund the deals and I would do most of the work. I see many investors who will find deals, repair the homes and sell them but need a partner to help pay for the fix and flip. A 50/50 split is very common in these deals when one partner puts up the money and another does all the work. This may seem like an unfair split considering one person is doing all the work, but without the money, the deal could not be done.

This is one way to get started flipping, but giving up 50 percent of the profit is a big deal. I explain why saving and using more of your own money to flip will make you more money here. I think the goal of a flipper is to save enough of their own money to start paying for down payments and repairs on houses. When you give up 50 percent of the profit, it is hard to save enough money to start funding your own deals.

With a partner, it is possible that you could complete a flip without any of your own money, but you will make much less. Instead of making a $30,000 profit on a house, you would only make a $15,000 profit.

How much money will you need to flip with a bank?

It is not easy, but it is possible to flip using bank financing. I use a portfolio lender to fund my flips and they are awesome. They give me 75 percent of the purchase price and charge me 1.5 points on my short-term fix and flip financing. Instead of the 15 percent, a hard money lender would charge, my lender charges 5.25 percent interest.

My lender does not fund any of the repairs, but some portfolio lenders will. Every portfolio lender has different terms and guidelines on how much money they will lend and at what rates. I have to put down 25 percent of the purchase price and pay for repairs on each flip. That can add up to $45,000 to $60,000 on a $100,000 purchase, depending on how many repairs are needed. That seems like a lot of money, but by using my money I save thousands on the interest rate and points a hard money lender would charge. I also get to keep all the profits since I have no partner. I don’t use all my money to pay for these expenses, because I use private money as well.

How much money do you need to flip a house with private money?

Private money is an investor’s best friend if you can find the right person with the right terms. Most private money comes from someone you know; a family member, a friend or a business acquaintance. Many people are looking for a way to invest their money and get great returns without much risk. Investing money into a flip business can achieve high returns without much risk, depending on the situation. A brand new flipper is going to be riskier than an investor who has completed 50 fix and flips. Real estate can also be used as collateral for private money to give the lender more assurance the money will be paid back.

Because there are different levels of risk involved with every deal and each lender expects a different level of return, terms vary greatly with private money. I am able to pay 8 percent interest on my private money because I am a very seasoned investor and I offer great collateral to my lender. Other private lenders may expect 10 percent or even 15 percent interest on their money based on the risk. The hardest part of getting private money is finding someone to lend you money. You can’t be afraid to ask around to see if anyone you know would be interested in lending you money and getting higher returns on their money in the process.

With private money, it is possible to get started flipping with no money out of your own pocket. It may be hard to find a lender that will fund your entire deal, but it is the best route for fix and flipping with as little of your own money as possible and still keep the profits you make.

Conclusion

In order to fix and flip a home, you are almost always going to have to use some of your own money or split a large chunk of the profits with a partner. In order to make the most money flipping, I think a combination of bank financing, private money, and your own money is the best route to take. It is hard work saving and building up enough money, but well worth it in the end. Buying a house, fixing it up, and selling it takes a lot of time and risk. I want to be rewarded with the most money I can for taking on that risk.

Build a Rental Property Empire

Categories Fix and Flips

Source: investfourmore.com

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Last Updated on March 29, 2023 by Mark Ferguson

It may seem ridicculous that real estate agents make so much money on the sale of a house. Selling a house is expensive and much of the cost is a real estate agent’s commission. Real estate commissions are usually paid entirely by the seller and are significant. I am a real estate agent in Colorado and even though agents are expensive they are still well worth it. Real estate agents do not charge as much as they do because of the time it takes to actually sell a house. They charge a lot because it takes work and money to market, it is hard to get licensed and become a real estate agent, they have to pay for dues and insurance and real estate agents usually have to split their commissions with their broker.

The biggest reason real estate agents make so much money is they are worth it! A real estate agent will usually sell your house for much more money than if you sold it yourself.

Why are real estate agents worth the commissions they charge?

A real estate agent’s main value is knowing the market value on a home. If a home is priced too low or too high, it can cost the seller thousands of dollars.  Price a home too high and it will stigmatize the home. Buyers start to wonder what is wrong with the home if it sits on the market even if the price has been reduced. Price a home too low and you could be leaving thousands of dollars on the table.

I hear stories about people who say they saved thousands of dollars when they sold their house by not using an agent; they sold the house in one day with multiple offers! If you received multiple offers on the first day, there is a great chance you underpriced the home and left money on the table. Most likely more money than the real estate agent would have cost. A real estate agent is an expert at pricing homes and a website like Zillow cannot be used as a substitute. I wrote an article about how accurate Zillow is, and it shows you need a local expert to price your house correctly.

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How do real estate agents make money?

In most situations, a real estate agent represents the buyer and seller of a home and both commissions are paid by the seller. This may not seem fair, but there is a very good reason the system works this way. Having the seller pay both agents’ commissions allows there to be a larger buyer pool and higher house prices.

Why does the seller pay for the buyer’s real estate agent?

Buying a house is expensive and most buyers need all the cash they have to pay for the closing costs and down payments. If a buyer had to pay for their real estate agent as well, there would be much fewer buyers who could buy a home. With a bigger buyer pool, more houses sell and sellers can charge more for their homes. Even though the seller pays for the buyer’s agent, the seller makes more money in our current real estate system due to the higher house prices caused by more buyers.

How much is the real estate commission on a house?

This is a tricky question for me to answer because I am a real estate agent. There are no typical or set commissions; they are all negotiable. As a real estate agent, I legally can’t say the typical commission is such and such. Instead, I will link you to this article that explains commissions and tell you HUD pays a 6 percent commission to sell houses; 3 percent to the buyer’s agent and 3 percent to the seller’s agent. I have seen commissions on real estate both higher and lower, but remember there is no typical or set commission rate. Using HUD’s structure the seller would pay $12,000 to the real estate agents if their house sold for $200,000

Why do real estate agents make so much money on one sale?

On the surface, it may look like an agent makes a killing by making $6,000 on each side of the sale of one home. A real estate agent may work 10 hours or less on the listing side, which would equal $600 an hour for listing and selling a home. That is a lot of money, but a real estate agent does much more than work directly on the listing of a home. Most likely the listing agent has to pay part of that commission to their broker which may cut in half what they actually take home equaling $3,000.

There are many more reasons why that $6,000 is not as much as it may seem on the surface. A real estate agent must get licensed, must take continuing education, must pay for MLS, must pay for board dues, must pay for insurance and must market themselves. There is a lot of overhead involved in being an agent and a real estate agent is not just charging for the time it takes to list a home. The real estate agent is charging for their experience and market knowledge that allows a seller to make the most money selling their house.

Most real estate agents do not sell many houses

The truth is the average income for a real estate agent is only $39,000 a year, which I discuss much more here. The reason most agents don’t make much money is they have to pay a broker, many work part-time and many do not sell a lot of houses. The average real estate agent sold 12 houses in 2012, which would equal only $36,000 a year if an agent was making $3,000 per sale like in our example. If you want to be a real estate agent, don’t be discouraged.

Selling a house is not easy and real estate agents know how to do it best

Not only is it hard to determine the value of a house, but it also is not easy to complete the transaction. Many transactions are not completed even with the help of real estate agents. The state contract in Colorado is 17 pages long and there are at least five more disclosures that must be used. Most transactions involve financing which takes a knowledgeable lender and title company. A real estate agent can help a seller and buyer choose the best people to make sure everything goes smoothly and everyone does their job. 

Conclusion

It is expensive to use a real estate agent, but well worth it. Real estate agents go through a lot to become licensed, pay a lot of fees, must work under a broker and bring specialized knowledge that helps sellers get the most for their home. If you are an investor and sell a lot of homes, it may be worth it to become an agent yourself. Otherwise, it will save you money to use a real estate agent.

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

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Last Updated on February 25, 2022 by Mark Ferguson

Rehab Valuator is a real estate investing program that analyzes properties for flipping, wholesaling or renting. I had the opportunity to try it out and provide my own Rehab Valuator Review. The Rehab Valuator is a great tool and the lite version is absolutely free. It helps you estimate repairs, calculates financing costs, figure returns and profits. I am constantly writing about the costs involved in flipping because so many beginners underestimate them. The Rehab Valuator program does a great job of figuring all the costs for you and even figures the 70 percent rule, which many flippers go by.

I don’t review many products on InvestFourMore, because I only endorse products I believe in. I have tried out many products that I thought were lacking in substance or extremely overpriced and you don’t hear about those products, because I don’t feel they deserve any publicity. I have tried out more than a few real estate investing programs and most of them are not worth the money. This is one of the few products that I feel is worth the money.

How can Software help house flippers?

The Rehab Valuator Software is extremely easy to use. Daniil Kleyman created the program, who is an extremely experienced real estate investor. He has invested in many rentals, flips, and commercial projects. The program helps fix and flippers in a number of ways including determining financing costs, figuring repairs, determining closing costs and carrying costs. When I first tried out the program I was able to determine the potential profit on one of my flips in about five minutes.

The program is in an excel sheet that prompts you to enter the important data on a flip; loan terms, repair estimates, length of the rehab, purchase price, closing costs, selling costs and after repaired value. The form gives pre-populated values and percentages for common costs of these items and is very accurate in my experience. The program then tells you the potential profit, the cash needed and the return on your investment.

Financing costs

The program is great for flippers because they have many features built in for hard money loans. You can choose a loan amount based on the ARV, you can choose the points to be paid when you sell the house like you would with hard money. If you have other types of financing, then that can be entered into the program as well, but it is a little trickier. I could not find a way to enter a loan to value amount on the purchase price, but I could adjust the percentage of the ARV loan percentage until I reached my loan amount.

Repair costs

The program has a separate page just for repair costs on flips. The program does not give you common costs for repairs, which is understandable since costs can vary so much depending on the scope of work and your location. The form lists many repairs that would need to be done; you enter a dollar amount for the repairs, a time frame to complete them and the form computes the repairs and time frames into the entire equation.

Carrying costs and selling costs

Many investors forget about carrying costs when flipping homes. You have to account for insurance, taxes, utilities, and maintenance when you hold a property for months. The Rehab Valuator lets you input all the holding costs as a lump sum or enter each cost on a monthly basis. The program then calculates the costs based on the number of months you will hold the property. The program also lets you enter the selling costs as a percentage of the selling price. Those costs would include commission, title insurance, recording fees and a few more.

Profit

When you enter all the data into the program, it gives you a total profit number and return on your investment. I used numbers for a flip I am almost done with and my profit came out to $68,000 and a 78 percent return on my investment. I like those numbers and I will detail this flip in my fix and flip update articles. The great thing about the profit number is you can change financing terms or length of time you hold the property to instantly see how much your profit changes. The program even has a spot where you can enter a percentage of the profit to be split with the lender or an investor.

My  Rehab Valuator review: Can it help wholesalers?

The Rehab Valuator has some great features for wholesalers as well. There is a very simple program to determine what price a wholesaler would have to buy a house to sell it to an investor who would flip the house. Enter the ARV, the repairs and the profit the wholesaler takes, and you get the price you can pay for the property. The only issue I saw with this calculator was you can enter carrying costs and closing costs, which decrease the offer price even more. In my experience, the 70 percent rule works without having to enter holding or carrying costs as additional expenses. You can also adjust the 70 percent value to be 65 percent, 75 percent or whatever value you want.

Another great part of the program is it generates detailed, professional reports that you can give to investors who may want to buy the wholesale deal. You plug in the numbers for the repairs and other costs and the Valuator generates the report that will make you look like it was created by a professional. The more information you can give to the investor, the more comfortable they will feel buying a house from you.

What about rental properties?

Rehab Valuator also has a program that calculates returns on rental properties. This program is similar to the flip program as far as the data you enter but gives different figures for returns, cash flow and lets you include information on refinancing.

Financing costs

When you enter the loan terms, you use the same form as when you entered loan terms for the flip. You can then enter terms for a refinance after you repair the property. This is a nice feature because it lets you see what your returns and costs would be if you use hard money to refinance into a conventional loan. The only problem with this form is I could not turn off the refinance feature, so if I wasn’t refinancing I have to change the numbers around on the refinance terms to match my original loan. I can change the numbers pretty easily to match my interest rate and loan amount to what the original loan would be.

Repair costs

You can enter the repair costs just as you would with the flip calculator and it will factor those into your repairs. The program also tells you exactly how much cash you will have invested in the rental property after down payments, repairs, and closing costs.

Cash Flow and Cash on Cash

The rental property program will take all the figures you plug into it and give you cash flow, cash on cash returns, cap rate, and even DCR. The DCR is the debt coverage ratio and is a tool many lenders use to evaluate how good of an investment your rental is. The program has more forms where you would input the monthly expenses including vacancies and maintenance to come up with the cash flow.

The rental property Valuator and the flip Valuator can both be seen on the same page to help you determine whether it is better to rent the house or flip it. I wish I could see the rental property numbers on their own without the flip Valuator, but that is not a feature yet. If you are using different types of financing on the rental versus the flip, you have to manually change all the financing numbers to see a comparison.

How Rehab Valuator can help you get private money funding

Rehab Valuator also has many reports that can be created to help find investors or private money. You can attach pictures, enter comparable property information and couple that with the flipping or rental property numbers to create a professional looking report. If you are trying to secure private money or a partner, they are going to want a lot of information. Those investors will not want that information scratched onto napkins or lose notebook paper. The more professional the package is the better chance you have getting investors to give you money.

How easy is the program to use?

The program is very simple to use and comes with video instructions if you have any problems. The program also has great customer support if you need personalized assistance to get it up and running. I was able to get started right away as it is very straightforward. Each number you enter into the program is on a numbered line and each number line has instructions on what the figure is and what it means to you. The tricky part comes in with some of the financing options if you are not using hard money with a flip or you are not refinancing a rental property. You can still work around those items and there may be a better way to enter information that I have not found yet.

Conclusion

I think the Rehab Valuator is a great tool for flippers, wholesalers or buy and hold investors. The Rehab Valuator lite version is available for free here. The lite version does not come with every feature I described here, but it gives you a great idea of the functionality of the program.

Build a Rental Property Empire

Categories Fix and Flips

Source: investfourmore.com

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A number of requirements must be met to take advantage of the scheme.

Price Limits

The value of the residential property must not exceed the price caps that have been set by the government in your state or regional area. In New South Wales, where property is most expensive, the cap is set at $900,000. In more affordable states such as Tasmania, the maximum price is $450,000.

“The price caps serve as your ceiling—the maximum price you can go for,” says Mardiasmo. “It doesn’t mean you have to go up to the maximum. If you are able to find a property that is lower, then this will serve well in terms of the amount of debt taken.”

Mardiasmo also notes that the caps represent the total value of the property. Buyers who are purchasing a house-and-land package need to be especially mindful of this, as they risk having their application rejected if the price of both is over the maximum limit.

“Sometimes buyers can be caught out with variations in construction contracts if they are purchasing land and then having a separate contract to build a home,” says Mardiasmo. “They could also be caught out if they are buying a house-and-land package, in which the total cost can vary, depending on your choice of inclusions.”

Buyers of these types of properties will need to sign a fixed-price building contract.

Along with the First Home Guarantee, there is also a Regional First Home Buyer Guarantee and a Family Home Guarantee for single parents with at least one dependent child. You can read more about the price limits via this table.

Property Types

There is also some flexibility in terms of the type of property being purchased–however it is essential that the property in question is a residential one. In other words, the applicants will become the owner-occupiers. Investment properties are excluded from the scheme.

Eligible residential properties include:

  • an existing house, townhouse or apartment
  • a house and land package
  • land and a separate contract to build a home
  • an off-the-plan apartment or townhouse

Relationship Status

Both singles and couples can benefit from the scheme. Single applicants with a taxable income of up to $125,000 per annum for the previous financial year are eligible, whereas the total income for a couple is $200,000 per annum.

Previously only couples were eligible for the First Home Guarantee if they are married or in a de-facto relationship with each other. However, from July 1, other people buying together, including siblings or friends, will be eligible.

The scheme was also expanded in the October budget to provide support specifically for single parents. There are now 10,000 Family Home Guarantees available for eligible single parents with at least one dependent child who have a deposit of as little as 2%. From July 1, this definition of single parent, will be expanded to include legal guardians, including aunts, uncles and grand-parents.

Loan Requirements

Loans under the First Home Guarantee require scheduled repayments of the principal and interest of the loan for the full period of the agreement.

There are limited exceptions for interest-only loans, which mainly relate to construction lending.

Wage Thresholds

A single person is eligible if they earn $125,000 per year or less, as is a couple who earns a combined $200,000. This must be shown on the Notice of Assessment issued by the Australian Taxation Office.

Deposit Size

To be eligible for the scheme, the minimum deposit size is 5% of the total price of the property. A single parent with children can have a deposit of 2%. The maximum deposit size allowed is 20%.

Source: forbes.com