Defence force home loans: what DHOAS is worth, and when the open market wins

Does the ADF help you buy a house?

Yes. The ADF helps you buy a house through DHOAS, the Defence Home Ownership Assistance Scheme. It helps current and former ADF members and their families into home ownership by paying part of the interest on an eligible home loan each month. The Department of Veterans' Affairs (DVA) runs it on behalf of the Department of Defence [1].

What DHOAS doesn't do is cut your deposit or waive LMI. LMI is insurance the lender takes out when you borrow more than 80% of the price, and you pay for it. DHOAS pays towards your interest, not your deposit, so the deposit question is answered the same way as for anyone else (part 15).

The catch is the lender. The subsidy is only paid on a loan from one of three lenders [2]. So every ADF member buying a home is weighing two things: the subsidy, and what those three lenders offer against the rest of the market.

How much is the DHOAS subsidy?

The DHOAS subsidy is up to $583, $874 or $1,166 a month, depending on your tier. Your tier depends on how long you've served, and each tier has a limit on the loan the subsidy is paid on [1].

The monthly figures are DHOAS's own estimates, set from the median interest rate, and they move when that rate moves [1]. The yearly column is Money Brain's arithmetic: the monthly figure times twelve [13].

What this means for you: more service means a bigger subsidy on a bigger loan. If you're close to the next tier's service, ask DVA how your tier is set before you pick a date to buy.

Who is eligible for DHOAS?

You're eligible for DHOAS once you've completed a qualifying period of service: at least 2 years in a row of permanent ADF service, or at least 4 years of effective Reserve service with at least 20 paid days in each financial year. You also need to have served on or after the scheme's start date, which is given in source 1 [1].

DHOAS is for current and former ADF members [1]. Whether a former member can still use it depends on their service, which DHOAS sets out on its own pages. If you've left, check your entitlement with DVA before you plan around it.

Reserve members qualify on the same tiers, with longer service at each step: 4, 8 and 12 years, against 2, 4 and 8 for permanent members [1].

Is DHOAS worth more than a cheaper loan elsewhere?

DHOAS is usually worth more than a cheaper loan elsewhere, by a long way, when your loan is near your tier's limit. At the top of Tier 1, the subsidy is up to $583 a month, about $7,000 a year, on a loan of $455,622. For an open-market loan to save you the same, its rate would need to be about 1.5 percentage points lower on that amount [1][13]. The same holds at Tiers 2 and 3: the most the subsidy pays works out to about 1.5 points of interest on each tier's loan limit.

That holds only near the limit. On a smaller loan the subsidy is smaller, and on a bigger loan it's a smaller share of what you owe (part 6).

What this means for you: the subsidy is set by DHOAS, but each panel lender sets its own rate and fees. So the fair comparison is the panel loan's cost after the subsidy against the best open-market loan you could get. As an illustration, if a panel rate were 0.5 points higher than an open-market rate on $455,622, that gap would cost about $2,300 a year in interest, and the subsidy would still leave you about $4,700 a year ahead [13].

Where the open market can win is everything else: a lender that counts more of your allowances (part 18), an investment property, or a line of credit. A DHOAS loan can't fund the last two (part 7).

What if your loan is bigger than your tier's limit?

If your loan is bigger than your tier's limit, the subsidy is still at most your tier's monthly figure, because it's paid on a loan up to that limit [1]. So the bigger the loan, the smaller the subsidy is as a share of the interest you pay.

What this means for you: on a loan well above the limit, a lower open-market rate on the whole loan has more room to catch up with the subsidy. That's the case where it's worth running both sides on your real numbers rather than assuming DHOAS wins.

Can I switch my existing home loan to DHOAS?

Yes, you can switch an existing home loan to DHOAS, as long as the loan was for one of DHOAS's purposes: buying, building, renovating or extending your home, or buying land. The subsidy is paid only on the outstanding amount of your original loan, so you can't top up the loan while refinancing it into DHOAS [3].

That matters if you bought before you had the service for DHOAS, or with a lender off the panel. Once you qualify, moving that loan to one of the three panel lenders can bring the subsidy in. The panel lender's rate and fees still have to be weighed against what you have now.

Buying with a partner: who has to be on the title?

You have to be on the title, and you must hold at least half of the property, either alone or together with your partner [3]. So you and your partner can buy together with DHOAS, but a purchase where your share, with your partner's, is under half won't qualify.

Your partner's income counts toward what you can borrow together in the usual way. If your partner is also a serving member, ask DVA how DHOAS treats two members on one home before you settle the structure.

Buying when you could be posted

Buying when you could be posted works under DHOAS, but timing matters. DHOAS wants your subsidised home lived in for at least the first 12 months. Your family can meet that requirement while you're away from home [3].

If you move in in good faith and a posting comes after, the subsidy can continue. Tell DVA with a Change of Circumstances form, with a copy of your posting order, before you move, not after. If you wait until after you've moved, the subsidy may be stopped or suspended [3].

If you already know you'll be posted before the 12 months is up, the subsidy is paid only until you move out [3].

What this means for you: the order matters. Get the form in before the removalists, and if a posting is likely within the year, weigh whether to buy now or after the move. The 5% Deposit Scheme has a stricter live-in rule than DHOAS, which matters even more on a posting cycle (part 16).

Can I rent out my DHOAS home?

Yes. Once the home has been lived in for 12 months, you can rent it out and still receive your DHOAS subsidy, as long as your DHOAS loan stays current [3].

That's what makes DHOAS work on a posting cycle. You can buy where you're posted, live there for a year, and keep the home and the subsidy when the next posting takes you somewhere else. It's still a home loan, not an investment loan, so a DHOAS loan can't be used to buy the next property as an investment (part 23).

Which banks waive LMI for ADF members?

None of the lender groups whose LMI waiver policy documents Money Brain holds names ADF members, defence or military service: Westpac Group, CommBank, NAB, ANZ, Bankwest, Suncorp, Bank First, Macquarie, ING, AMP and the Teachers Mutual Bank group [4][5][6][7]. Seven of them have a professional waiver, written for medical, health, legal, accounting and a few other jobs, and four have none.

DHOAS doesn't change that. It pays towards your interest, not your deposit [1][3]. So above 80% of the price, an ADF member pays LMI unless another way in applies (part 15).

What this means for you: the question isn't "which bank waives LMI for defence?" but "which way in costs me least?" For a first home buyer, that's often the 5% Deposit Scheme. For everyone, it's also which lender counts the most of your pay (part 18).

Department of Defence civilian staff: a different answer

Civilian Department of Defence staff can get a different answer from uniformed members. Bankwest's waiver includes a government group: staff of federal ministerial departments at APS6, EL1, EL2 and SES levels. State departments are excluded [5]. That can include the Department of Defence. It doesn't cover uniformed members.

Under that group, Bankwest lends up to 89.99% without LMI on loans up to $2 million, and 84.99% up to $3 million, on principal and interest, in your own name only [5]. If you're a Defence public servant, check your level and your department against Bankwest's wording before you rely on it.

What LMI costs an ADF member, in dollars

LMI on a 90% loan costs an ADF member the same as anyone else. Here's what it would be on one insurer's published rate card, at standard and first home buyer rates [9].

These are illustrations from one rate card, not quotes. Your premium depends on the insurer, the loan and the lender.

What this means for you: on a $700,000 home with 10% down, LMI is about $16,900. That's more than two years of the Tier 1 subsidy. It's why the deposit question deserves as much thought as the DHOAS one.

Low deposit home loans for ADF members: your ways in with less than 20%

An ADF member has four ways to buy with less than a 20% deposit, the same four as anyone else. The right one depends on your price, your savings, whether it's your first home, and whether you'll use DHOAS.

Which way comes out ahead is worked out on your numbers, not picked from a list. Paying LMI can be the right answer if it gets you in years sooner. See First Home Guarantee, guarantor home loans, Help to Buy, the 5% Deposit Scheme or a guarantor and what LMI is and who waives it.

ADF first home buyer? The 5% Deposit Scheme, its price caps and its live-in rule

An ADF member buying a first home can use the government's 5% Deposit Scheme, which lets you buy with a 5% deposit and no LMI, because Housing Australia guarantees the lender in place of LMI. It has no job test, no income caps and no waitlist. Single parents and legal guardians can buy with 2% [10].

You must be 18 or older, a citizen or permanent resident, live in the home, and not have owned property in the past 10 years. The loan must be with one of the scheme's participating lenders [10]. Whether the lender you'd use for DHOAS also offers the scheme is something we check for you before you plan around both.

The price and the lender's valuation must both be at or under the cap for the area. Only a short list of regional centres gets the capital-city cap: in Queensland, the Gold Coast and Sunshine Coast; in Victoria, Geelong; in New South Wales, the Central Coast, Coffs Harbour-Grafton, the Illawarra, the Mid North Coast, Richmond-Tweed, and Newcastle and Lake Macquarie. Everywhere else outside the capitals is on the rest-of-state cap [10]:

What this means for you: the scheme's live-in rule is stricter than DHOAS's. You must move in within 6 months of settlement and keep living there, and the home can't be rented out while the guarantee is in place. The guarantee ends once the loan reaches 80% of the value on your scheduled repayments [10]. On a posting cycle, that can matter more than the deposit.

How do lenders count ADF allowances and overtime?

Lenders count ADF allowances differently, and the difference shows up in what you can borrow. Allowances that are part of your ongoing pay are where lenders differ most. Some count them in full once they've been paid for a while; others count part of them, or cap them against your base salary.

Short-term allowances, the ones paid for a posting, a deployment, living away or separation, are generally not counted, because they stop when the posting does.

Here are the general rules of four lenders whose credit policy Money Brain has read, in our own words. Some lenders write separate, more generous rules for particular essential-services jobs. We haven't verified whether any lender treats ADF members that way, so those rules are left out. We also haven't verified how these four treat ADF allowances by name, so which of yours counts as ongoing is the lender's call on your payslip. Defence Bank and Australian Military Bank aren't in the table because we haven't read their policies; where a cell shows a dash, the rule isn't one we've verified.

What this means for you: if your allowances are a big part of your pay, the lender you pick can change your borrowing more than the rate does. A lender that counts 80% of $15,000 of allowances counts $12,000; one that counts them in full counts all $15,000.

Reservists: Reserve pay and a civilian job

Reserve pay is tax-free, which changes how a lender reads it: what you're paid is what you keep. If you also have a civilian job, a lender reads that pay on its own rules.

If your civilian job is casual, lenders want a minimum time in it first. Westpac Group wants 6 months continuous with the same employer or agency; NAB averages the last 180 days; Bankwest, Macquarie and ING want 6 months in the current job (Macquarie also takes the past 6 months in the same field); ANZ wants 6 months employed; AMP wants 6 months with the employer and 12 months in the same industry and role [8].

For DHOAS, Reserve service counts as effective service with at least 20 paid days in each financial year, and the tiers need 4, 8 or 12 years of it [1].

New to the ADF: can you get a home loan before DHOAS?

Yes, a new ADF member can get a home loan before qualifying for DHOAS, just without the subsidy. DHOAS needs at least 2 years in a row of permanent service, or 4 years of effective Reserve service, before it pays anything [1].

Lenders want to see you've started and been paid. At Westpac, a loan without mortgage insurance needs you to have started and received at least one pay. A mortgage-insured loan needs 3 months in the job, or less than that with 12 months in the same occupation and no gap of more than 2 months between jobs [8].

If you buy before you qualify, DHOAS lets you refinance a home loan into a DHOAS loan later, on what you still owe (part 8) [3]. Check that path with DVA before you buy, so the loan you take now doesn't close it off.

On parental leave, or going back to work

You can buy while on parental leave. Westpac can use your return-to-work pay, base pay only, with a letter from your employer giving your return date, your hours and your pay. Every child counts as a dependant, including one not yet born [8].

If your first repayment falls before you return, you'll need to show savings that cover the gap, on top of the money for the purchase. With a mortgage-insured loan in that case, Westpac won't lend for an investment [8].

How much can an ADF member borrow?

How much an ADF member can borrow comes down to three things: what a lender counts of your pay, your debts, and your living costs. Banks then check you could still make the repayments if rates were 3 percentage points higher, the buffer APRA expects. APRA has also capped loans to people whose debts are six or more times their income at 20% of each bank's new home lending [12].

That's why the same member can get quite different answers from two lenders. One that counts all your ongoing allowances can lend noticeably more than one that counts part of them, or caps them. See how much can I borrow.

Buying an investment property as an ADF member

An ADF member can buy an investment property, but not with a DHOAS loan: the scheme's funds can't be used to buy investment properties [3]. An investment loan comes from the open market, on the same lender rules as anyone else, and above 80% you'd pay LMI [4][5][6][7].

Your DHOAS home can still become a rental after 12 months, with the subsidy kept (part 11). Once you own one property, the order you buy the next ones in decides whether you can keep going. That's the work we enjoy most: see using equity to buy an investment property.

What does a mortgage broker cost an ADF member?

How a broker is paid, and the rule Money Brain holds against it, is set out in full on its own page: what a mortgage broker costs.

Your first move

You've read the rules. Now there's one question left: a DHOAS loan from one of the three panel lenders, or the open market, for your tier, your pay and your next posting? That depends on your service, your allowances, your deposit and your timing, and it's what Money Brain works out before anything goes to a lender.

When you're ready, the closing section below is the simplest way to start.