First Home Buyers in Australia

  • Compare loans from multiple lenders

  • Search without impacting your credit score

  • Lowest interest rates and fees

  • Find your best loan deal swiftly

Contents

    What is a first home buyer loan?

    Buying a home can and should be an exciting process that represents the beginning of something new for you and your family. Unfortunately, this can also become an extremely expensive and complicated undertaking. Give yourself the upper hand by learning how to understand and compare first home buyer loans.

    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.

    Home loan features

    Everyone’s financial situation is different, and you want a loan that’s customized to your needs. The best home loan for first home buyers in Australia will have flexibility in some or all of these loan aspects:

    • Offset accounts

      This is a separate savings or debit account connected to your home loan, meant to reduce your interest costs in the long run.

    • Redraw facilities

      If you need immediate access to funds, some lenders will let you withdraw any extra repayments you’ve already made.

    • Repayment options

      Ask about the frequency of the repayments, the ability to pay extra to get ahead, and flexibility on missing a payment.

    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.

     

    To get additional advice on the home loan process as a first time buyer, look for personal finance blogs and podcasts that specialise in real estate advice.

    Government support for first home buyers

    There are many programs at both the state and federal level that exist to ease the burden for first home buyers in Australia. Many buyers fail to take advantage of these opportunities because they don’t even know what is available to them:

    • First Home Owner Grant (FHOG): This is cash paid towards your new home loan, and can range up to $15,000. FHOGs vary by locality.

    • Stamp duty discounts: Many states and territories will offer discounts and reductions on stamp duties for first home buyers, which can shave thousands of dollars off the total price.

    • First Home Super Saver Scheme (FHSSS): This program lets you pay for the deposit by withdrawing funds from your superannuation savings, as long as you’ve been making sufficient contributions.

    • Family Home Guarantee: Under this program, single parents can be eligible for a home loan with a deposit of just 2%.

    • First Home Loan Deposit Scheme: This setup requires you to deposit just 5% of the cost, and the government guarantees another 15% to the lender, allowing you to meet the 20% threshold necessary for avoiding LMI requirements.

    First home buyer FAQ

    How much can I borrow for a first home loan?
    Borrowing limits are based on your income, existing expenses, prior debts, and how much you’re able to put down as a deposit.
    What is a repayment holiday?
    This is a pause on your repayments, which can be useful during a temporary reduction of income (e.g losing a job).
    Can I take out a first home loan with bad credit?
    Yes, bad credit first home loans are available. However, expect high interest rates and fewer options overall.
    Can I refinance a first home loan?
    Yes, your loan will not be set in stone for the entire term. In fact, it’s a good idea to re-examine your loan details after a few years to see whether you can get a better deal.
    Can I qualify for a home loan if my deposit is a gift?
    Many people afford home deposits with a large gift from their loved ones, but some lenders require proof of “genuine savings” to demonstrate financial discipline.
    Can a guarantor help me get my first home loan?
    Yes, a guarantor (outside person who backs the loan, usually a family member) can be very helpful if you can’t afford a large deposit but don’t qualify for government programs.

    First home buyer conclusion

    Getting a home loan is always complicated, but it’s especially challenging for first home buyers who don’t have much experience in this area. For the vast majority of people, a home is the biggest purchase they will make in their life, and this can be very intimidating. If you’re on the hunt for the best home loan for first home buyers in Australia, you are now better equipped thanks to reading this article.