Homebuyer Fund case studies

Buying a home with shared equity

Shared equity for Elisa

Elisa saves $25,000. This is the minimum 5% deposit needed for a $500,000 home. She uses the Homebuyer Fund eligibility tool to check if she may be eligible for the State to contribute 25% towards the purchase. Elisa then applies to one of the State’s participating lenders for a shared equity home loan with the Homebuyer Fund. The lender assesses her application with the Homebuyer Fund. Elisa gives the lender the information it needs and agrees to the terms and conditions. She then receives approval for a shared equity purchase.

Elisa makes an offer to buy a home. Her lender and the Homebuyer Fund approve the offer, and the seller accepts it. Elisa moves into her new home. At this point, Elisa owns 5% of the home and the State owns 25%. Her home loan is $350,000, which is 70% of the purchase price. She must make repayments under the terms of her home loan. Elisa must repay the State’s share within the initial term of her home loan, plus 60 days.

Making payments to reduce the State’s share

Refinancing for Chen 

Chen cannot leave the Homebuyer Fund in the first 2 years. When she exits the scheme after 5 years, the State’s share will be based on the property’s market value at that time. This value is adjusted for any value added by approved renovations. Valuer-General Victoria determines the market value.

Chen buys a house valued at $460,000 with help from the Victorian Homebuyer Fund. She pays a 5% deposit of $23,000. The Homebuyer Fund contributes 25%, which is $115,000. Chen takes out a home loan with one of the State’s participating lenders to cover the remaining $322,000.

Chen does not pay interest or annual fees on the Homebuyer Fund’s 25% share. However, when Chen makes a repayment, the State is entitled to 25% of any increase in the property’s value.

Five years later, the property is valued at $560,000. Chen’s home loan balance is $291,000. The State still has a 25% share in the property.

Chen decides to pay out the State’s 25% share. She asks her financial institution to increase her home loan by $140,000. This is 25% of the property’s current value of $560,000. Chen’s financial institution approves the increase, and Chen uses the $140,000 to pay out the State’s share.

With help from the Homebuyer Fund, Chen bought her first home and later refinanced to pay out the State’s share.

Voluntary payments for Lily

Lily can make voluntary payments at any time to reduce the State’s share in her property. However within the first 2 years, the State must keep at least 5% interest in the property. Lily’s payment must be at least $10,000 and reduce the State’s interest by at least 5 percentage points. The reduction is calculated by dividing the payment by the current market value of the property, adjusted for any value added by approved renovations. This amount is deducted from the Homebuyer Fund’s original interest. Valuer-General Victoria determines the market value. 

Lily buys a property for $500,000. The Homebuyer Fund contributes $125,000, which is 25% of the property’s value. After 3 years, Lily has saved $30,000 and wants to make a voluntary payment.

Valuer-General Victoria values the property at $550,000. This is $50,000 more than Lily paid for it. Lily’s $30,000 payment meets the rule that voluntary payments must be at least $10,000.

The payment also reduces the State’s share by 5.45 percentage points, from 25% to 19.55%. This is more than the minimum reduction of 5 percentage points.

Calculation:

$125,000 ÷ $500,000 = 25% – initial State share

$30,000 ÷ $550,000 = 5.45% – reduction in the State’s share after Lily makes the voluntary payment

25% − 5.45% = 19.55% – State share after the voluntary payment

Voluntary payment restrictions for Eric

Eric buys a property for $750,000. The Homebuyer Fund contributes $150,000, which is 20% of the property’s value.

After 6 months, Eric has saved $15,000 and wants to make a voluntary payment. Valuer-General Victoria values his property at $725,000. This is $25,000 less than Eric paid for it. Eric’s $15,000 payment meets the rule that voluntary payments must be at least $10,000.

However, the payment would only reduce the State’s share by 2.07 percentage points. Voluntary payments must reduce the State’s share by at least 5 percentage points. Eric will need to save more before he can make a voluntary payment.

Calculation:

$150,000 ÷ $750,000 = 20% – initial State share

$15,000 ÷ $725,000 = 2.07% – reduction in the State’s share after Eric makes the voluntary payment

Mandatory repayments for Katy

Katy buys a property for $610,000. The Homebuyer Fund contributes $152,500, which is 25% of the property’s value.

After one year, Katy’s annual review shows she is under the relevant income threshold. In the next 2 annual reviews, her income goes over the threshold. Participants can stay in the Homebuyer Fund if they go over the threshold. However, if they go over the threshold in 2 annual reviews in a row, they must ask a panel lender if they can increase their loan. The extra loan amount must be used to repay some or all of the State’s interest in the property.

Because Katy goes over the threshold in 2 annual reviews in a row, she must make a mandatory payment to reduce the State’s share in her property. The payment must reduce the State’s interest by at least 5 percentage points and be $10,000 or more. Valuer-General Victoria values her property at $650,000. This is $40,000 more than Katy paid for it.

Katy’s lender checks whether she can afford to increase her loan. A lender does not have to approve a higher loan unless the participant meets its usual serviceability checks. If the lender does not approve the loan, it must tell the participant in writing so they can confirm this with us.

In Katy’s case, the lender tells her she can increase her loan by $50,000. Katy uses this amount to make a mandatory payment. This reduces the State’s share by 7.69 percentage points, from 25% to 17.31%. This is more than the minimum reduction of 5 percentage points.

If Katy’s lender had not approved a higher loan, she would need to keep trying to increase her loan with a panel lender and update us on her progress every 6 months.

The Homebuyer Fund uses the same method to calculate Katy’s reduction as it uses for voluntary payments.

Calculation:

$152,500 ÷ $610,000 = 25% – initial State share

$50,000 ÷ $650,000 = 7.69% – reduction in the State’s share after Katy makes the mandatory payment

25% − 7.69% = 17.31% – State share after the mandatory payment

Changes to ownership

Adding a partner for John and Cindy

John qualified for the Homebuyer Fund as an individual and bought a home. He later begins a relationship with Cindy. Three years later, Cindy moves into John’s home as his spouse. John wants to add Cindy as a registered owner of the property.

John must first ask us to approve Cindy joining the Homebuyer Fund. We assess John and Cindy’s eligibility as joint applicants. They meet the eligibility requirements, so Cindy is approved to join the scheme and can be added to the title.

Selling your home

Sandeep and Susan pay back the State’s share

Sandeep and Susan buy a property valued at $700,000. They pay a 5% deposit of $35,000 and the Homebuyer Fund contributes 25%, which is $175,000.

Participants cannot sell their property in the first 2 years of the scheme. After this period, Sandeep and Susan decide to sell their home for $890,000. This is $190,000 more than they paid for it. 

Because the State has a 25% share in the property, it receives 25% of the increase in value, which is $47,500. This means the State’s share is now worth $222,500. Sandeep and Susan must repay this amount from the sale proceeds, after they repay any outstanding loan to their participating lender.

Capital gains tax is administered by the Australian Taxation Office (ATO). For more information on capital gains, visit the ATO’s website. 

Renovations before sale with Yarran

With help from the Homebuyer Fund, Yarran buys a home worth $700,000. He pays a 5% deposit of $35,000 and the Homebuyer Fund contributes 25%, which is $175,000. After moving in, Yarran decides to renovate and gets approval for the renovations.

A few years later, Yarran sells his home for $900,000. Valuer-General Victoria values the approved renovations at $20,000 at the time of sale. This amount is deducted from the sale price before the State’s share is calculated. Yarran repays $220,000 to the State from the sale proceeds. This is calculated as $900,000 sale price, less $20,000 for the value of approved renovations, multiplied by the State’s 25% share.