Owning your own home has been ‘the Australian dream’ for many Australians. Unfortunately, with property prices rising, it is a dream that is becoming increasingly out of reach. It also takes a long time to save a 20% deposit towards your own home, with the goal posts often moving as property prices rise. In their desperation to buy their own home, people can often buy cheap but inferior properties that do not fit their long-term needs. As a result, they may sell too soon to move to a home that better suits them.
In response to these problems, government initiatives are available to help people buy their own home. These include government guarantees that allow people to buy their own home without paying lender’s mortgage insurance (LMI), and government equity schemes where people get a smaller home loan in exchange for the government owning part of their home. People who take advantage of these initiatives, though, can often buy homes too soon when they are not financially ready. Consequently, they may sell their home too soon as they do not have enough money to keep up with home loan repayments or respond to financial emergencies.
For me, I initially saved for a 20% deposit so that I have more options of what property I could buy. At the same time, I took advantage of a government equity scheme to buy a home that would suit me for a longer period of time. In this blog post, I will explain why I chose to participate in a government equity scheme and how I took advantage of being in the scheme without getting into financial trouble.
What is a government equity scheme?
The government equity scheme I used to buy my first home was the Victorian Homebuyer Fund. Under the initiative, the Victorian government contributed up to 25% of the property price in exchange for owning 25% of the property. This allowed a prospective home owner to only put in a 5% deposit without paying LMI and to secure a smaller home loan from the bank (up to 70% of the property price). The home owner eventually pays off the government’s share of the property upon selling the property, paying part of the government’s share or refinancing the home loan. What is good about the scheme is that a home buyer is not restricted to one type of property; they can purchase any new or existing property (but not off-the-plan properties) within Victoria, subject to price caps in metropolitan Melbourne ($950,000) and regional Victoria ($700,000).
To get into the scheme, prospective home owners needed to satisfy a few criteria. Besides having enough money to cover a 5% deposit, applicants also needed to:
- Earn under a certain threshold ($135,155 for individuals, $216,245 for couples and single parents);
- Live in the property;
- Never owned land or property before entering the scheme; and
- Cover all other costs associated with purchasing a home such as:
- Stamp duty: A state tax on the transfer of property or land.
- Bank fees: To establish the home loan and pay associated fees such as application fees, property valuation etc.
- Conveyancing fees: For the conveyancer to do the searches and work on the legal aspects of buying the property.
- Building and pest inspection fees: To see if there are any major defects on the property.
There were also ongoing obligations that needed to be satisfied to stay in the scheme. These included:
- Completing annual reviews on their eligibility to stay in the scheme;
- Having insurance on the property;
- Making payments on time, including home loan repayments, council rates, utilities and body corporate fees;
- Keeping the property in good order and fixing any defects; and
- Seeking approvals for renovations that cost more than $10,000, involve structural changes or require authorisation such as council approval.
Nevertheless, it is good to go into a government equity scheme to buy property. As the government provides money on top of the money the home owner and their bank contribute, the home owner’s borrowing capacity increases. This allows them to buy a more expensive home that will fit their needs for a longer period of time. Furthermore, the home loan is smaller, leading to smaller repayments. Combined with the fact that less money needs to be spent to cover a home deposit, this frees up some money to do some renovations or build some emergency savings.
As good as the scheme is in buying a well-suited home, there are a number of conditions that need to be met to stay in the scheme. Also, you will need to eventually pay the government back so that they do not have any ownership over your property. Hence, it is important to read and be familiar with how the government equity scheme works before entering into such a scheme.
How I got into the government equity scheme
I initially aimed to save a 20% deposit towards my first home. In working towards that goal, I learnt from doing some calculations and talking to a mortgage broker that my borrowing capacity was not high enough to buy a home in the suburb I wanted to live in. While researching on some government grants, I came across the Victorian Homebuyer Fund. This initiative appealed to me as the government’s contribution to the home would increase my borrowing capacity, allowing me to buy a property in the suburb I wanted to live in.
I tried to apply for the scheme through a mortgage broker. Unfortunately, this was not possible, with the mortgage broker saying I needed to apply directly with the bank. With the bank, it took me around two months to get into the scheme as I had to go through both the bank’s pre-approval process (to determine whether I would be able to make repayments on time and how much I could borrow) and the Victorian Government’s provisional approval process (to see whether I am eligible for the Victorian Homebuyer Fund). Along the way, I had to communicate regularly with the bank and send a lot of documents. It took so much time to get my application processed that I missed out on a few properties I would have bought.
Eventually, I received both pre-approval from the bank and provisional approval from the Victorian Government to get in the Victorian Homebuyer Fund. And thankfully, I had two properties come up which potentially suited me. With the government equity scheme, I was not only able to purchase one of those properties, but I was also able to pay a smaller deposit, saving me a lot of money that I could use to renovate my home and build some emergency savings.
How to take advantage of government equity schemes without getting into financial trouble
The one thing I will say about government equity schemes is that you should not use them to buy a property as soon as you have a 5% deposit. Otherwise, you will be financially stressed as you cannot keep up with home loan repayments and increased expenses. Instead, save as much money as possible towards the deposit of your first home (preferably 20%), and use a government equity scheme as a step-up to buy a home that suits you for a longer period of time. Saving as much money as possible also gives you a fallback plan should you not get into the scheme. If you are in the scheme, you will have more room to either do some renovations or start building some savings to cover any financial emergencies. For more information on how to save for a 20% deposit, see this blog post on the Fast and Slow System. You can also use the First Home Super Saver Scheme to save money towards your first home. More information about the scheme can be found in this blog post.
Financial stability is also important when entering into government equity schemes. I made sure that I was in a stable, full-time job before I started getting a home loan and applying for the Victorian Homebuyer Fund. This helps maintain a stable income that will cover my home loan repayments. I also revised my cash flows to make sure I had enough money to cover my home loan repayments and bills, build some savings and cover my daily needs and fun stuff. Entering into a government equity scheme without considering whether your job is stable or having insufficient savings will cause financial stress which may force you to sell your home too soon.
Lastly, make sure that you are ready to move into your own place and stay there for a few years. Government equity schemes are designed for people to live in their property until they have paid off the government’s share of the property. Hence, doing some research on different suburbs, and thinking about what property you would like to buy, are very important. I spent a lot of time doing some research before getting into the scheme. I walked around some suburbs to see what they were like and how far they were to shops and amenities. I also looked at some recently sold properties to see what the properties were like and decide what properties were ideal to me. This gave me an excellent background that I used to find unique properties that I could buy and live in for a long time
Conclusion
Government equity schemes are a great way for home buyers to buy a home. Being in such a scheme allowed me to buy a more expensive home that would suit my needs for a longer period of time, and to save money to do some renovations and build some savings. If you are considering applying for a government equity scheme, just make sure to use it as an addition to your saving goals towards your home deposit. Also, make sure that you are financially stable so that you can keep up with your home loan repayments. Lastly, do as much research as possible so that you know whether a government equity scheme is right for you and you know where you want to live. Follow these steps, and you can take advantage of government equity schemes without getting into financial trouble.
PS: The Victorian Homebuyer Fund ended on 30th June 2025, to be replaced with the federal government’s Help to Buy Scheme. This scheme is similar to the Victorian Homebuyer Fund, with slight variations in eligibility, price caps and conditions. Nevertheless, my tips of taking advantage of government equity schemes without being financially stressed stay the same: just make sure to use government equity schemes as an addition to your home deposit rather than a crutch, be financially stable, and do some research on the scheme and the property you want to buy.
Financial disclaimer
Anything that is posted on The Active Evaluator blog is for general informational purposes only. You should not interpret this information as formal financial advice. If you would like advice tailored to your personal situation, please seek an accredited professional. I am not responsible for any subsequent actions you take by reading my blog as well as any expenses, costs, losses, damages and injuries you or another person may incur in the process.