Compare First Home Buyer Loans in Australia

What is a first home buyer loan?

A first home buyer loan provides first-time property buyers with the means to break into the housing market.

While it works as a regular mortgage, some lenders offer first home buyers rate discounts, waiver on fees, and free loan features that can help them manage their finances while they service their loans.

Types of first home buyer loan

Similar to regular mortgages, first home buyer loans have different types, each has its own advantages and caters to a specific type of first-time borrower.

Fixed Loans

A fixed-rate mortgage carries an interest rate that is locked over the specified loan term, usually up to five years. However, some lenders offer 10-year fixed-rate terms.

With a fixed rate, repayments will be locked into an unchangeable interest rate, which means monthly repayments will remain the same until the fixed term ends.

When the fixed-rate term ends, the interest rate of a home loan will revert to the standard variable rate.

The biggest advantage of getting a fixed-rate home loan is repayment certainty. First-time borrowers can easily plan their monthly budget knowing their mortgage repayments will stay the same for a certain period.

Getting a fixed-rate mortgage protects borrowers from rate increases, which is the usual response when the Reserve Bank of Australia (RBA) hikes its cash-rate target.

Borrowers who decide to switch to a variable rate or refinance to a lower rate before their fixed terms end usually have to pay break costs and discharge fees.

Variable loans

A variable-rate home loan provides first home buyers with an interest rate that move up or down over the loan term.

While lenders usually have the final discretion whether they would increase or decrease the mortgage rate, variable rates usually follow the movement of the RBA’s cash rate target.

When the RBA decides to cut the cash rate, lenders would respond by dropping their variable rates. This makes this type of loan ideal for borrowers who want to take advantage of the downtrend in the cash rate.

Refinancing from a variable-rate mortgage to a fixed one is simpler — most lenders do not charge hefty fees when doing the switch from a variable to a fixed rate.

Split loans

Borrowers who would like the certainty of fixed rates and the flexibility of variable rates should consider getting a split loan.

Under a split loan, a portion of the loan is charged with a fixed rate while the other incurs a variable rate, allowing the borrower to enjoy both worlds without hurting their pockets.

First home buyer loan repayment types

First home buyers who are applying for mortgages have the option to choose their repayment type according to their budgets.

Principal and interest loan

For many loan products, the principal and interest (P&I) repayment is the default structure. Repayments for a P&I loan go towards the principal of the loan and the interest.

The principal, which refers to the amount borrowed, is divided into equal monthly amounts based on the overall loan term while the interest is calculated annually.

This means that monthly repayments gradually decline every year as the principal amount of the loan gets paid off.

Interest-only loans

New home buyers who want to take it easy with mortgage repayments usually start their journey with an interest-only (IO) loan.

An IO loan provides borrowers a certain period, which usually lasts for five years when they will only be required to pay for interest charges. This means that monthly repayments will be significantly lower with an IO loan than with a P&I loan.

Borrowers with an IO loan are able to adjust their finances and manage their expenses during the first few years of the loan.

However, borrowers must be prepared to pay more when the IO period ends. Since the principal amount of the loan remained untouched for a certain period, the succeeding repayments following the termination of the IO period will be higher.

Must-have features of a first home buyer loan

First home buyers must always look for a lender that offers the lowest rates and fees. However, it is also important to consider getting a mortgage with features that can help them save and reduce their payments in the long run.

Here are some useful loan features first-time buyers must include in their checklist when looking for a home loan:

Offset account

An offset account works like a high-interest savings account. Funds deposited to an offset account is accounted daily against the loan balance, reducing the amount of interest charged to the loan.

Redraw facility

A redraw facility allows borrowers to make extra repayments to their loan which they can access whenever then need extra funds.

Extra repayments

Making extra repayments towards the loan reduces the overall interest charges, allowing borrowers to pay their home loans early.

Flexibility of repayment frequency

How often a borrower makes monthly repayment affects the overall time needed to pay off the loan completely. Paying weekly or fortnightly basis allows borrowers to pay their loan faster as it squeezes in an extra month of payments annually.

How much do you need to save for a deposit?

One of the challenges when buying your first home is saving up for a home loan deposit.

Typically, first home buyer home loan would require at least 20% of the property’s price as a deposit. However, it could take buyers a while to save for this amount.

This is where Lender's Mortgage Insurance (LMI) comes in handy — borrowers are allowed to have as little as 5% of the property’s value as a deposit or down payment as long as they pay this insurance premium.

The LMI is a type of insurance that protects lenders should a borrower default on their home loan. Most banks and lenders require borrowers to pay for LMI if their deposit is below the standard rate of 20% of the purchase price.

The amount of LMI usually depends on how much the borrower has for a deposit — the bigger the deposit, the lower the required premium would be.

How much can you borrow for a first home buyer loan?

Borrowing capacity is another concept first home buyers need to understand before taking the plunge.

When calculating applicants’ borrowing capacities, lenders usually look at three factors: annual income, monthly expenses, and loan details.

More income does not necessarily equate to higher borrowing power. Sometimes, high-income earners have lower borrowing capacity due to other financial commitments that leave them with little disposable income.

Borrowers who have more income, fewer expenses, and fewer financial commitments can land themselves a good offer from their chosen lender.

What other upfront costs are involved in buying a property?

It is a must for first home buyers to create a budget plan that includes the upfront cost of buying their first home.

Mortgage deposit

This is the biggest portion of the upfront expenses first home buyers must consider. As mentioned earlier, lenders typically require 20% of the property’s value as a deposit to secure a loan.

LMI

Borrowers applying with a deposit of less than 20% of the property’s value must pay LMI upfront. However, there is an option to have the premium be divided into monthly payments.

Building and pest inspection fees

Buyers usually shoulder the cost of any inspections done to the target property. This is usually done before settlement to ensure that the building is in its best shape.

Legal and government fees

These fees cover transactions such as stamp duty, property and title searches, strata inspection, reviewing and exchanging sales contracts, arranging to pay taxes, and the general oversight in the transfer of titles.

Home Loan Costs

Upfront costs when applying for a home loan depends on the policies of lenders. This may include application fees, valuation fees, and conveyancing charges.

How to apply for a first home buyer home loan?

There are two options on how one can apply for a home loan: through a broker or directly to their lender of choice.

First home buyers can seek the help of mortgage brokers in finding the ideal lender and loan product for their current financial conditions.

Buyers can also do everything by themselves by reaching out to their lender of choice and applying directly.

Either way, first-time borrowers would need to secure their credit rating to know how likely they are going to be approved for a loan.

When applying for a loan, borrowers must make sure that they do not make a fishing expedition and send out several applications to different lenders. They could end up with several remarks on their credit report that would look suspicious to lenders.

What documents do you need when applying for your first home loan?

The paperwork involved in applying for a mortgage is crucial as lenders use these documentary requirements to analyse applications.

Buyers should ensure that they submit these documents promptly and properly to ensure a hassle-free application:

• Proof of Identification:
  • Passport
  • Birth certificate
  • Citizenship certificate
  • Centrelink pension card
  • Driver's License or permit
• Proof Employment and Income:
  • Payslips (most recent ones)
  • Tax Returns
  • Certificate of Employment
• Proof of current debts:
  • Credit Card Statements
  • Other billing statements
• Accomplished Application Forms

What assistance and grants are available to first home buyers?

In an effort to support the aspirations of many Australians to achieve homeownership, the federal and state governments have rolled out several grants and support schemes to ease the financial burden involved in homebuying.

First Home Loan Deposit Scheme

One of the biggest support schemes first time buyers must not miss out on is the First Home Loan Deposit Scheme (FHLDS).

The FHLDS provides a guarantee that allows first home buyers to apply for a mortgage with as little as a 5% deposit. With FHLDS, borrowers will not need to pay the LMI even if their deposits are lower than the standard set by banks.

Eligible residential properties include existing houses, townhouses, apartments, house and land package, land and a contract to build a home, and an off-the-plan apartment.

Here are the other versions of the deposit scheme:

New Home Guarantee Scheme

This deposit scheme is specifically for first home buyers who are buying or building a new home.

It works similarly to the FHLDS but it has higher property price caps and is available only in selected markets.

Family Home Guarantee

This scheme helps eligible single parents with at least one dependent break into the market with as little as a 2% deposit.

To learn more about 

First Home Owner Grant

Introduced in 2000, the First Home Owner Grant (FHOG) is a state-based support scheme that provides first home buyers with a one-off grant that will go towards the purchase of their property.

Each state also has its own guidelines in implementing its respective FHOG scheme. Most state governments are offering a $10,000 grant.

Stamp Duty Concessions and Exemption

First home buyers are usually given exemptions and concessions on stamp duty, which refers to the tax imposed by the local government to have the property transferred to the name of the buyer.

Each state has their own rules on stamp duty. Most first home buying transactions, however, are exempted from this tax, as long as the properties meet the value threshold.

Other government support schemes and grants

Here is a list of current programs in some of the states and territories specifically catered towards helping fresh property owners in their homeownership journey.

New South Wales

First Home Buyer Assistance – Eligible first home buyers are given the exemption from paying transfer duty or a concessional rate.

Victoria

First-home buyer duty exemption – First home buyers are given a waiver or discount on stamp duty. Iterations of the grant include those for off-the-plan buyers and pensioners.

Queensland

First Home Concession and First Home Vacant Concession – First home buyers get a discount on transfer duties when buying their first property or vacant land.

Western Australia

Home Buyers Assistance Account – Up to $2,000 grant is available to cover the incidental expenses of first home buyers when they purchase an established or partially built home through a licensed real estate agent.

Northern Territory

Household Goods Grant Scheme – A $2,000 grant is given to first home buyers and can be used to buy household goods, including kitchenware, furniture, appliances, and other similar items.

ACT

Home Buyer Concession Scheme – This provides first home buyers with waivers or discounts on duty depending on the details of the property transaction.

Tasmania

First Home Owner Duty Concession - ​​​The scheme provides a 50% discount on property transfer duty for first home buyers of an established home.

South Australia

Currently, South Australia does not offer any form of stamp duty concessions or exemptions for first home buyers.