First-home buyer loans can be a huge step toward financial freedom and a dream lifestyle, but the home loan process can be daunting, with many borrowers not understanding available grants and assistance. In this guide, you will learn:
- The costs involved in purchasing and owning your first home
- How to calculate how much you can borrow
- How to get your first home loan
- The professional assistance you will need
- How the first-home buying process works
- Available First Home Owner grants and stamp-duty exemptions
The cost of buying your first home
Purchasing your first home can be an expensive decision. If it’s your first time looking to buy a home, you might be surprised to discover the total cost of a property can be broken down into a few separate areas. You can learn more about each of these below.
First home deposit
When you buy a home you pay a deposit to the vendor when the purchase process begins. It’s usually better to have a deposit equal to 20% of the home’s purchase price, although you may be able to secure a home loan and buy your first home with as little as 5%.
Keep in mind that if you buy with a deposit less than 20% you may have to pay extra costs like lenders mortgage insurance, additional fees and higher interest rates. It may also be harder to secure a loan.
Lender’s Mortgage Insurance (LMI)
Lenders mortgage insurance is a one-off fee charged by your lender to cover their losses in the event that you default on your home loan. It’s only charged if you have an LVR exceeding 80% (deposit less than 20%) and its size depends on a number of factors like:
- Your LVR (The higher it is, the higher the LMI cost will be)
- Your risk profile as a borrower.
- The location of your property.
Stamp duty
Stamp duty is a tax charged by state governments on the transfer (sale and purchase) of residential property. It’s one of the biggest costs of buying property and varies from state to state and depending on what type of property you purchase.
In some states, there are stamp duty discounts of exemptions available for first home buyers that can make this cost easier to bear.
Use the stamp duty calculator to estimate stamp duty on properties in Australia.
Mortgage costs
When you apply for and secure a loan your lender may charge you a number of fees for processing your application. The state government may also charge you a fee to register your mortgage:
- Application fee: $150+
- Valuation fee: $200 to $500+
- Mortgage registration costs: $135 to $187 depending on location
Legal fees
When you buy your first home you’ll need a solicitor or conveyancer to provide advice, check the contract of sale and arrange settlement. This could cost anywhere from $500 to $2,200, according to Think Conveyancing.
Inspection costs
Before you buy a property it’s a good idea to have a professional building inspector inspect it so that you know whether or not it needs repairs and is structurally sound. This will cost anywhere from $400 to $2,000 depending on the size of your home and its location.
Working out the total cost of buying a home
In most cases, you’ll have to cover all of the above costs with savings. It can be difficult to know exactly how much you’ll need to save, so we’ve prepared an example to give you a rough idea.
Example
| Example purchase 1 | Example purchase 2 | Example purchase 3 | |
|---|---|---|---|
Property location | SA | NSW | VIC |
Purchase price | $500,000 | $500,000 | $500,000 |
Deposit amount | $25,000 | $50,000 | $100,000 |
LMI amount | $15,722.50 | $7,920 | $0 |
Inspection costs | $750 | $750 | $750 |
Conveyancing fees | $1,000 | $1,000 | $1,000 |
Upfront mortgage costs | $600 | $600 | $600 |
Stamp duty | $21,330 | $0 (stamp duty exemptions apply) | $0 (stamp duty exemptions apply) |
Extras costs (home repairs, home insurance) | $2,000 | $2,000 | $2,000 |
Your first mortgage repayment (usually one month after settlement) | $2,002 | $1,897.22 | $1,686.42 |
Total savings/cash required | $68,404.50 | $64,167 | $106,036.42 |
Guide to securing your first home loan and buying a home
Our step by step guide
1. Sort out your finances
To buy a home you’ll need a decent chunk of savings. To get an idea of how much you’ll need, take a look at the price of homes in the area that you want to buy and divide them by five - that’s the rough amount you’ll need to save for a 20% deposit.
To work out the rest of the costs you’ll have to save for:
- Use a stamp duty calculator.
- Use an LMI calculator (if you’re borrowing more than 80% of the property’s value).
- Investigate which grants and incentives are available to you. Apply these as far in advance as possible.
- Add up the other costs using the information above.
Once you’ve calculated the costs, take a look at your finances and figure out how much you need to save. If you’ve already got the savings you need, congratulations! If not, set a savings goal and work towards it.
2. Choose a lender and a home loan
Once you’ve got your finances in order it’s time to choose a lender and a home loan. The most important features to consider are:
- Rates - Learn more about home loan interest rates.
- Features - Learn more about home loan types and features.
- Fees and repayments - Learn more about home loan fees and repayments options.
Once you’ve done your research and compared several loans it’s time to pick your loan and lender of choice - Learn more about applying for a home loan.
3. Get finance pre-approval
After choosing your lender the first thing you need to do is get finance pre-approval. This is essentially an indication from your lender that they will lend you a certain amount based on the information you have provided. Pre-approval is usually valid for a period of 3-6 months.
Some lenders can issue pre-approval 100% online, others will require you to send them documents, while others will require you to visit their offices in person. To apply you’ll need to fill out an application for and supply the following supporting documents:
- 100 points of ID.
- Proof of income.
- Proof of debt.
- Record of your spending, expenses and assets.
Keep in mind, pre-approval is not formal approval. If your employment or financial situation changes after you get pre-approval the lender can still deny your application.
4. Find the help you need
Before you start searching for properties you should organise a team of professionals to support you through the purchase. This should include a:
- Conveyancer.
- Building inspector.
- Mortgage broker if you want help applying for home loans.
- Buyer’s agent if you want help selecting a property.
It’s always a good idea to choose who you’ll use for these services before you start house-hunting so that you’re ready to go when you find the right home.
5. Research the market and find a home
Your pre-approval will give you a clear idea of how much you can spend. Search for homes under that figure that tick all your boxes and start viewing properties.
When you find a property that you look at the sales prices of similar homes in the area recently, and research the local market to get an idea of how much it’s worth.
6. Make an offer
If you’ve found a home that’s just right for you don’t mess around - make a good offer right away to avoid missing out. Make sure that you’ve done research on the local market so that you don’t offer too much or too little.
Depending on your situation it may be best to make your offer conditional on:
- Finance
- Solicitor’s approval
- Building or pest inspection results
- Valuation (if necessary)
Keep in mind that the fewer conditions your offer has, the more attractive it may be to the vendor. If you’re competing with other buyers in a multi-offer situation it may be a good idea to make your offer unconditional or conditional on finance, provided you’re confident doing so.
7. Satisfy offer conditions
Once your offer is accepted the work isn’t over. You’ll need to satisfy any conditions that you included in your offer during this period such as building inspections, finance and valuations.
8. Arrange settlement
Settlement is the process of passing ownership from the seller to you, the buyer. The date of settlement will be included in the contract of sale - it can be negotiated with the vendor but it’s usually 30-90 days from the date that your offer is accepted.
On settlement day:
- Your lender will register a mortgage against your new property and provide the balance
- Your conveyancer will check that the transfer goes through smoothly and that the mortgage and land are registered under your name with the correct office.
- You will complete a final inspection of the property.
To make sure settlement goes smoothly contact your lender to make sure that you have the funds needed to make the purchase. You should also speak to your conveyancer to ensure they’re ready to help you carry out settlement.
First-home buyer grants and incentives
The First Home Owners Grant is an incentive available for eligible first-home buyers in Australia buying their first home. This one-off lump sum payment differs in value from state to state and can make up part of your deposit.
Stamp duty exemptions give eligible first-home buyers discounts or full exemptions from stamp duty if they meet eligibility criteria.
Australia First Home Owner Grant and stamp duty exemptions by state
| FHOG existing home | FHOG new home | Stamp duty exemption | Stamp duty max home value exemption | Stamp duty max home value discount | |
|---|---|---|---|---|---|
VIC | $10,000 | $10,000 | ✔️ | $600,000 | $750,000 |
NSW | $10,000 | $10,000 | ✔️ | $650,000 | $750,000 |
QLD | $15,000 | $15,000 | ✔️ | $500,000 | $500,000 |
WA | $10,000 | $10,000 | ✔️ | $430,000 | $530,000 |
SA | ❌ | $15,000 | ❌ | ❌ | ❌ |
ACT | ❌ | ❌ | ✔️ | (Income tested) | (Income tested) |
NT | $10,000 | $10,000 | ❌ | ❌ | ❌ |
TAS | $10,000 | $10,000 | 50% discount | $400,000 | $400,000 |
State-by-state guide to First Home Owners Grants
First Home Owner Grants are cash grants offered by most state and territory governments that are available to Australian residents who’ve never bought a home before. Eligibility rules are different from state to state but in general, they include:
- At least one applicant must be a permanent Australian resident or citizen.
- You, your partner/spouse or co-purchaser must not have lived in a residential property that you owned in Australia.
- You must buy as a person, not a company or trust.
- You must not have claimed the grant before.
- You and any co-purchasers must be at least 18 years of age.
- You must continuously occupy the home for 12 months after the date of settlement.
To apply for the First Home Owner Grant and confirm that you are eligible visit your state or territory authority’s website or contact them directly. In most cases, the First Home Owner Grant can be used as a part of your deposit when securing your first home loan.
First Home Owners Grant amounts by state
| FHOG amount | Max purchase value | Available for existing homes | Available for new homes | |
|---|---|---|---|---|
NSW | $10,000 | $750,000 | ❌ | ✔️ |
VIC* | $10,000 | $750,000 | ✔️(must be less than 5 years old) | ✔️ |
QLD | $15,000 | $750,000 | ❌ | ✔️ |
NT | $10,000 | ❌ | ❌ | ✔️ |
TAS | $20,000 | ❌ | ❌ | ✔️ |
SA | $15,000 | $575,000 | ❌ | ✔️ |
WA | $10,000 | $750,000 to $1m | ❌ | ✔️ |
ACT | Not available (as of 1 July 2019) | ❌ | ❌ | ❌ |
First Home Loan Deposit Scheme
The First Home Loan Deposit Scheme was introduced by the Australian government in January 2020 to help first home buyers purchase property sooner. It includes up 10,000 home loans guaranteed by the Australian government during the financial year from 1 July 2020.
Because the loans are guaranteed by the government borrowers can purchase with as little as a 5% deposit and won’t have to pay lenders mortgage insurance. This could enable buyers to save several thousand dollars when purchasing.
To apply for the First Home Loan Deposit Scheme you’ll need to apply for a loan with a participating lender.
HomeBuilder Grant
Eligible Australian owner-occupiers can receive grants of $25,000 to build a new home or undertake major renovations thanks to the government’s Home Builder grant.
Eligibility rules are similar to the First Home Owner Grant including:
- An income cap of $125,000 per year for singles and $200,000 for couples.
- The property value must be under $750,000.
- Renovations must be valued between $150,000 and $750,000 and the value of your property must not exceed $1.5m.
This grant is available to all eligible people who build, not just those who are building their first home. If you are eligible for both it can be used with the First Home Owner Grant.
Stamp duty exemptions for first home buyers
To make property more affordable for first home buyers most Australian state governments offer eligible purchasers an exemption or discount on stamp duty.
To qualify for a stamp duty exemption the property must be valued under a set amount in most states. If the property is valued over that amount, the available discounts will decrease as the value of the property increases.
Stamp duty exemptions for first home buyers by state
| Stamp duty discount concession available | Exemption max value | Discounted rate max value | |
|---|---|---|---|
NSW | ✔️ | $650,000 | $800,000 |
VIC | ✔️ | $600,000 | $750,000 |
QLD | ✔️ | $500,000 | $550,000 |
SA | ❌ | ❌ | ❌ |
WA | ✔️ | $430,000 | $530,000 |
NT | ✔️ | $500,000 | $650,000 |
TAS | ❌ | ❌ | ❌ |
ACT* | ✔️ | ❌ | ❌ |
First Home Super Saver Scheme
The First Home Super Saver Scheme (FHSSS) is designed to help first home buyers boost their savings by enabling them to save their deposit inside superannuation. This gives them a tax cut on their savings and investment returns and can boost deposit savings by as much as 30% compared to saving through a standard deposit account.
Eligible first home buyers can contribute up to $15,000 a year and $30,000 in total under the FHSS.
Guarantor home loans
On top of these incentives, you may also be able to benefit from a guarantor home loan. A guarantor is a person - usually a close relative - who secures your loan against their property.
If you do secure a guarantor home loan you won’t be charged LMI and you may be able to buy with no deposit. However, if you are unable to make mortgage repayments your guarantor may be liable for the full amount.
Summary
Before you buy your first home you should make sure you’re ready for the cost. That includes:
- Saving a deposit
- Lenders mortgage insurance
- Stamp duty
- Conveyancing fees
- Mortgage application fees
- Inspection and search costs
Once you’ve got your finances in order, talk to a lender to get pre-approval for your first home loan. This is an indication of what the bank will lend you and will give you an idea of how much you can spend on a property.
Keep in mind, pre-approval is not formal approval and the bank can still deny your application. Once you’ve got pre-approval you can start making offers on homes and progressing through to settlement.
If you need help buying your first home and securing your first home loan there are options available to you. That includes:
- First Home Owner Grant
- First Home Deposit Scheme
- Stamp duty exemptions & discounts for first home buyers
- The First Home Super Saver Scheme
- HomeBuilder Grant
Securing your first home loan and buying your first home can be daunting but with the right help, a few sacrifices and a lot of dedication you may be able to make it happen sooner than you thought.
First-Home Buyer Home Loan FAQ
What is the First Home Buyer Loan Deposit scheme?
The First Home Buyer Loan Deposit scheme (otherwise known as the First Home Loan Deposit Scheme) is a government initiative that allows first home buyers to secure a loan with a deposit as small as 5% without paying LMI. The scheme is limited to 10,000 places per year.
How can I compare first home buyer loans?
Use our home loan comparison tool to compare first home buyer loans. Remember to look at the comparison rate, not the interest rate as the comparison rate includes fees.
What are the requirements for first home buyer loans?
In general first home buyer loans have the same requirements as normal home loans. The bare minimum requirements for buying your first home are:
- A deposit of at least 5% of the property’s value but over 20% is preferable.
- The income required to service loan repayments.
If you don’t have a 5% deposit ready you may still be able to buy but you may require a guarantor loan.
Do first home buyer loans have higher interest rates?
No. Most lenders do not offer loans specifically for first home buyers but those that do include market interest rates comparable to other home loan products.
Can I get a first home buyer loan with no deposit?
Yes in some rare cases you may be able to get a no deposit home loan. In most cases, this will only be possible with a guarantor home loan.
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