Home Loan

Everything You Need To Know About First Home Buyer Loans

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Buying your first home is an exciting time in your life but can also be a major source of stress. Searching for information on loans, brokers and deposits can be overwhelming. Here, we’ll walk you through everything you need to know about first home buyer loans and how to secure them. Let’s begin.

Buying your first home is an exciting time in your life but can also be a major source of stress. Searching for information on loans, brokers and deposits can be overwhelming. Here, we’ll walk you through everything you need to know about first home buyer loans and how to secure them. Let’s begin.

Important Notes on First Home Buyer Loans

Before you begin the process of securing your first home buyer loan, it’s important to consider both the upfront and ongoing costs associated with buying your first home. These costs will help determine just how much money you should consider borrowing.

Upfront costs include:

  • The purchase price – The total cost of the home you’re purchasing, which will typically be paid by both your deposit and monthly loan repayments.
  • The deposit – This is how much money you’ll need to put down upfront to secure your loan, generally from 5%-20% of the purchase price.
  • Loan application fee – This generally covers credit checks, property appraisals and other admin done by your lender.
  • Lender’s mortgage insurance, or LMI – Though your deposit can be as low as 5% for approval, if it’s below 20% you may need to make a one-time payment to your lender as insurance. This covers your lender if for some reason you can’t repay your loan. 
  • Government charges – These include things like stamp duty, mortgage registration and transfer fees. These government charges will vary depending on where you live or where your property is located.
  • Building, pest and strata inspections – You’ll generally pay for these services before you buy a home to be aware of any structural concerns or ongoing building maintenance issues.
  • Legal settlement fees – This covers your real estate conveyancer or solicitor, who’ll prepare the necessary paperwork and conduct the settlement process.

Ongoing costs are recurring monthly or annual payments. They include:

  • Loan repayments – These are typically paid monthly over a projected loan term of 25-30 years and cover part of the principal amount borrowed as well as interest.
  • Interest charges – This is what you’ll pay your lender on top of the principal amount borrowed. Generally, you’ll be able to choose between a fixed or variable rate or a combination of the two.
  • Other miscellaneous ongoing expenses – These could include council rates, utility costs, insurance and general home improvements.

What are first home buyer loans?

First home buyer loans are a way to enter the housing market for those without the cash on hand to purchase their first home outright.

Though repayment typically works as a regular mortgage, some lenders offer first-home buyers special rate discounts, waivers on fees or free loan features that can help them manage their finances while they service their loans.

The median age of those taking on first home buyer loans is now 33, with a median gross income of about $115,000.

Which loans are best for first home buyers?

First home buyers will, generally, be eligible for the same home loans as experienced home buyers. In fact, they’re usually eligible for incentives and tax advantages that others may not have access to such as the first home owner grant or government schemes.

Instead, what really matters in terms of securing a home loan as a first home buyer is your credit score, financial history and size of down payment.

While everybody’s situation is different, you’ll need to work out just how much you can afford to borrow before looking at different loan types. A mortgage calculator can be useful for this.

How much you can afford to borrow depends on your:

  • Income and financial commitments
  • House deposit, plus any other savings
  • Credit score and credit report

After determining how much you can afford to borrow for your first home buyer loan, you can look at home loan rates.

In general, you should look for the shortest term loan you can afford and aim for the lowest interest rate. You’ll need to weigh the pros and cons of fixed vs variable interest rates to determine which is best for your lifestyle.

Fixed Interest Rates

A fixed interest rate stays the same for a set period. The rate then changes to a variable interest rate, or you can negotiate another fixed rate for a set period.


  • You know what your repayments will be which makes monthly budgeting significantly easier.


  • You won't see any benefit if interest rates go down.
  • It may cost more to switch loans later if you find a better rate due to break fees charged by lenders.

Variable Interest Rates

A variable interest rate goes up or down as the lending market changes, like when official cash rates change.


  • A variable-rate may offer you greater flexibility, such as if you want to refinance or release equity.
  • It's generally easier and cheaper to switch variable interest rate loans if you find a better rate elsewhere.


  • Variable interest rate loans can make budgeting harder as your repayments could go up or down.

If you're not sure whether a fixed or variable interest rate is right for you, you can settle on a loan that has both. With a partially-fixed rate (split loan), a portion of your loan has a fixed rate and the rest has a variable rate. You can decide how to split the loan (for example, 50/50 or 20/80).

When it comes to repayment, your first home buyer loan also has multiple repayment options. 

  • Principal and Interest Loan – This repayment type is standard. Monthly payments will go towards both the principal amount of the loan borrowed, as well as interest on the principal. 
  • Interest-Only 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 for the first five years, but will increase after the period ends and borrowers must begin payments on the principal.

What is the First Home Owner Grant?

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

Each state has its own guidelines for implementing its FHOG scheme. A one-time grant of between $5,000 to $20,000 is available depending on your state and the property price.

The FHOG can be used towards your first home buyer loan deposit. There are a handful of options provided to you by the government for purchasing your first home in addition to the FHOG. 

The First Home Guarantee is a new scheme that can help you to secure a first home buyer loan with a deposit below 20% without paying Lenders Mortgage Insurance. This can be used in conjunction with the FHOG.

State governments may also offer stamp duty exemptions and other benefits that can help you lower the upfront costs of purchasing your first home. You can refer to your state government’s first home buyer website for more detailed information:

How much deposit does a first home buyer need?

You can buy a home with a 5% deposit with Lenders Mortgage Insurance free options now available for eligible first home buyers. However, a down payment of 20% of the price of the home is what’s most commonly advised.

What is Lenders Mortgage Insurance? 

Lenders Mortgage Insurance, or LMI, protects the bank in the case of default for home loans that are entered into with a down payment that’s less than 20%.

The amount you borrow relative to your home’s value is known as the ‘loan to value ratio’ (LVR). A high LVR means you owe a large amount of money compared to the amount you put down as a deposit. Generally, an LVR of higher than 80% means your lender is likely to charge you LMI.

LMI-free options for your first home buyer loan are now available thanks to the First Home Guarantee. This government scheme allows you to have a deposit of less than 20% but avoid paying LMI if qualified.

Guarantor Home Loan

If a deposit is a concern for you and you are able to have family support, a guarantor home loan is a type of home loan where instead of a deposit you use your parent's (guarantor) property as additional collateral.

If using a guarantor home loan, you won’t need to put down a deposit or pay a premium on LMI, however, there are risks for your guarantors if you are unable to make payments.

Deposit Bond

A deposit bond may also be an option for purchasing your first home in various scenarios, especially if you are using a guarantor home loan. Just like a cash deposit, a deposit bond guarantees your commitment to an unconditional contract of sale. At settlement, you pay the full purchase price, including the deposit amount and other costs.

You might use a deposit bond if:

  • You’re borrowing more than 90% of the purchase price and are short of immediate funds to pay the cash deposit.
  • You’re organising a guarantor loan, leveraging the equity in your parents’ property, and do not have enough funds for the cash deposit but can pay the full amount at settlement.
  • You have cash sitting in other investments that you would like to accrue for as long as possible before retrieving.

Deposit bonds do come with a fee which is dependent on the amount of cash needed and for how long.

Whenever possible, the higher the deposit the better. Deposits at 20% and above can help secure your first home buyer loan more easily and with lower monthly payments or a lower payment period. A lower loan amount helps you to build equity sooner and reduces interest charged over the period of the loan.

How much can a first home buyer borrow?

How much a first home buyer can borrow is relative to multiple factors, such as:

  • Income
  • Savings
  • Employment history
  • Credit History
  • Credit Score

When you have a very small deposit, between 5-10%, both the lender and LMI insurer will take a good look at your credit history. Any problems with your credit history may set back your first home buyer loan approval. You’ll want to make sure you have your financial records in order to justify your application. 

If you are self-employed, you may need to apply for a low doc loan. Low doc loans are designed for self-employed workers, who often can’t provide traditional proof of income like regular pay slips. 

The term ‘low doc’ means you will be providing different types of evidence of your income than traditional pay slips. Not every lender offers low doc loans and those that do might ask for a larger deposit or a higher interest rate. 

Obtaining pre-approval on your loan will let you know exactly how much you’re eligible to borrow before hunting for your first home, and lets the sellers know you’re a serious buyer. 

A mortgage loan calculator can give you a general idea of how much you can afford to borrow vs your monthly income before you apply for pre-approval.

First Home Buyer Loans at Finance 360 Degrees

Finance 360 Degrees helps first home buyers obtain the perfect home loan. We can help you discover your borrowing capacity and create a custom home loan strategy with your goals in mind.

Working with one of our experts will not only provide you with peace of mind knowing you’ll be securing the best possible first home buyer loan but will also provide you with invaluable advice throughout your entire first home buying journey.

Our experts will help get you prepared with all of the documents and information you need to get the best outcome.

Explore the top-tier guidance Finance 360 Degrees can provide you with today to ensure you’re getting the best first home buyer loan experience you can have.

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