First Home Buyers in Australia

What is a first home buyer loan?

This is a type of home loan or home mortgage that is specifically oriented to beginner homeowners. There are often special discounts and promotions to attract customers who skew younger and haven’t amassed a large net worth yet. The target audience is people interested in putting down roots in their community by buying real estate.

Essentials of being a first home buyer

The home buying process begins as soon as you start saving money for a home loan deposit. The deposit is the initial down payment or contribution toward the property purchase. A larger deposit means the remaining payments would be smaller, which is helpful with getting a loan approved.

An important concept here is the loan-to-value ratio, or LVR, which reflects how much you’ve borrowed relative to the overall property value. A low deposit means you have to borrow almost the entire value of the property, which leads to a high LVR. A higher deposit reduces the loan amount you need, contributing to a lower LVR.

Be aware that higher LVRs (above 80%, meaning your deposit was below 20%) are seen as more risky for the lender. As a result, they could make you purchase Lenders Mortgage Insurance, or LMI, as a precondition for the loan. This makes the loan more secure for the lender, which increases your chances of getting approved, but Lenders Mortgage Insurance can cost thousands of dollars.

In addition to the above, there may be other hidden costs of buying a home that you might not have considered yet.

Loan expenses for first home buyers

To ensure you’re getting the best first time buyer deals, you have to make sure you know the terminology for all the aspects of the process. These are some major extra costs during a home sale which you should know ahead of time:

• Stamp duty: A tax charged by state and territory governments during the sale of a property.
• Home insurance: A home insurance policy is required before you can take official ownership of any property.
• Home inspections: A survey conducted by a professional building inspector is critical for identifying problems with the property, such as structural flaws or pest issues.
• Conveyancing: A review by a legal expert is essential for conducting due diligence on the property, as well as ensuring that the sale contract is in order and your rights are protected.

Comparing home loan options

In order to boil things down to the essentials and make an informed first home loan comparison, there are a few key things to understand.

Interest rates

There are three main types of home loan rates, and different banks will have different options. When searching for the best bank for first home buyers in Australia, you want one that offers discounted rates to housing market newcomers. The three rate types are:

• Variable rate home loans: The interest rate changes with market fluctuations.
• Fixed rate home loans: The interest rate gets locked in place for one to five years and will then revert to a variable rate unless re-fixed.
• Split rate home loans: The interest rate is separated into two components, where part of it is fixed at a certain level while the remainder varies with the market.

Repayment types

If you want to properly compare first home buyer loans, you have to dig into the repayment structure. Certain loans are set up to be less financially straining early on, which is ideal for first time buyers. Some options are:

• Principal and interest home loans: You immediately start to pay back both the principal (original amount) of the loan as well as the interest.
• Interest-only home loans: You only pay for the interest on the loan during the first one to five years of the agreement, and later begin paying back the principal.

First home buyer FAQ