Buying your first home can be both exciting and overwhelming. After all, it’s likely to be the most significant investment you’ll ever make. It can also feel like a complicated process, particularly if you’re a first-timer trying to break into Australia’s property market.
Host of Selling Houses Australia, Andrew Winter, walks first home buyers through some of the things they'll need to keep in mind as they gear up to take out a home loan.
On top of the actual cost of buying a home, first home buyers may encounter industry jargon that can make it tricky to understand how it all works. If you’re overwhelmed by it all or want to brush up on your terminology, we’ve compiled a guide for buying your first home.
First, let’s clear up a few things for first home buyers in Australia, like what discounted rates, loans or fees might be available.
Technically, there isn’t really such a thing as a first home buyer loan, although some banks and lenders may offer discounted rates, fees or sign-up incentives for first home buyers. They might also apply slightly different lending criteria for loans to first-time homeowners.
But in most cases, lenders will offer the same products to first home buyers as they would to those who already own a home. This is true for both future owner-occupier borrowers and prospective investors.
While it’s not impossible for first home buyers to enter the market, the number of them who actually manage to do so has fallen in recent years. According to the Australian Bureau of Statistics (ABS), the number of new loan commitments for owner-occupier first home buyers fell 31.6% year-on-year to May 2022.1
Using the ABS’ seasonally adjusted figures, May 2022 saw 10,211 new homeowners enter the market, representing a 2.3% uptick at the national level month-on-month. While this is down 31.6% year-on-year, it shows that buying your first home in Australia isn’t an impossible dream just yet.
Here’s some key information on what many people think about first when it comes to home loans: rates, fees and features.
Most first home buyers will generally have access to the same interest rates as existing homeowners, whether they’re buying a residential property or an investment property, although some lenders will offer discounted rates and sign-up incentives for certain first timers.
According to the Reserve Bank of Australia (RBA), the average variable interest rate for new owner-occupier loans in April 2022 was 2.41%, representing a fairly steady decline from an average rate as high as 3.51% in August 2019².
The table below displays the average interest rates on offer across a range of different borrower profiles, courtesy of the RBA.
| Loan purpose | Average annual % rate for new loans | Average annual % rate for outstanding loans |
| Owner-occupier | 2.52 | 2.63 |
| Principal and interest | 2.46 | 2.59 |
| Interest-only | 3.19 | 3.47 |
| Investment | 2.83 | 2.97 |
| Principal and interest | 2.72 | 2.90 |
| Interest-only | 3.02 | 3.16 |
| Source: RBA, June 2022 | ||
While some of the differences between the rates in the table above may seem minor, that difference becomes significant in the context of a home loan. Even a minor reduction to your home loan interest rate can have a serious impact on the size of your regular loan repayments. Find out more about your interest rate options, such as fixed interest rates and variable interest rates here.
Home loans generally come with numerous upfront and ongoing costs, with the most common home loan-related fees being:
While these are the more common fees you’ll encounter as a first home buyer, be sure to do your research on any home loan products you’re considering to make sure you have a thorough understanding of the fees it charges.
As with interest rates, first home buyers will generally have access to the same range of home loan features as those already on the property ladder. Some of the home loan features that could be available to some home buyers include:
In good news for those not looking for any fancy features, ‘no frills’ home loans without any extra features generally come with lower interest rates and fees. So even those looking for simplicity first and foremost can still find a great value home loan that meets their needs.
No matter what you’re looking for in a home loan, you can begin your search by comparing your options with Compare the Market.
Finding it hard to build up the deposit you need to buy your new home? The federal and state governments provide schemes and grants to give potential buyers a helping hand, including:
The First Home Owner Grant (FHOG, also known as first home buyer grants) is a once-off lump sum paid towards your home loan for a new home. The FHOG is offered by the Australian Government and funded by each individual state and territory’s government, with each one imposing slightly different rules regarding borrower and property eligibility.
Despite these varying eligibility rules, the thing all states and territories have in common when it comes to the FHOG is that you must be either buying or building a brand new (i.e. never lived in) home to be eligible.
You can find detailed information about the FHOG in your state or territory below (information correct as of July 2022):
If you want to apply for your state or territory’s FHOG, be sure to check the current rules and eligibility requirements to make sure you still qualify.
You’ll generally have to pay stamp duty when buying a house, which could add up to thousands or even tens of thousands of dollars. Stamp duty, also known as transfer duty, is essentially a tax on sales and transfers of property and land.
While stamp duty can be expensive, many of the country’s state and territories offer stamp duty concessions and discounts for first home buyers, which could save you thousands of dollars.
Visit your state or territory revenue office website for more information on whether you’re eligible for these stamp duty exemptions and discounts and how much they could save you.
The First Home Guarantee lets 35,000 eligible Australians purchase their first home with a deposit as small as 5%¹⁷, subject to eligibility requirements. The federal government then guarantees up to 15% of the property value, which saves the borrower from having to pay lenders mortgage insurance (LMI). As of July 2022 the eligibility requirements include:
Additionally, the property in question must be either:
Additionally, different postcodes have different property price caps for eligibility, so be sure to check your desired postcode’s price cap before applying for the FHBG.
The New Home Guarantee was a government scheme aimed at helping first home buyers buy or build new homes with a deposit as small as 5% of the property value. As of July 2022 the scheme has been brought to an end and is no longer accepting new applicants – however, prospective homebuyers who were considering applying for the NHG may also be eligible for, and benefit from the more broadly applicable FHBG.
Many of the eligibility requirements are similar, with the only major difference being the emphasis on helping people buy new homes. That being said, be sure to check the relevant property price caps and eligibility requirements to make sure you’re eligible for the FHBG before applying.
The First Home Super Saver Scheme (FHSSS) allows you to voluntarily contribute to your superannuation fund’s balance (either before or after-tax) in order to use those contributions to form part of your house deposit¹⁸. Under this scheme, $15,000 worth of your voluntary super contributions can be made per year, up to a total of $50,000 across all years as of July 2022.
You can only request a release under the FHSSS scheme once, it must be for your first home, and if you have any outstanding government debt (not including HECS or HELP debts) your withdrawal may be offset by the amount you owe.
Under the Family Home Guarantee (FHG), 5,000 single parents per year for the next four years (15,000 in total from 1 July 2021 to 30 June 2025) will be eligible for a home loan with participating lenders requiring a deposit as small as 2%¹⁹.The government will guarantee the remaining amount to 20% in order to save the borrower the cost of LMI.
In order to be eligible for the Family Home Guarantee, one must:
Here are some key terms you need to know if you’re saving for your first home.
Your home loan deposit is your initial contribution to a property’s purchase. Some form of deposit is generally required to buy a home. The deposit demonstrates your income and ability to save and provides security for the lender giving you a home loan.
It used to be a reliable rule of thumb that you’d want 20% of the property value saved in the form of a deposit, as this would generally prevent you from paying lender’s mortgage insurance (LMI) and help you afford the property. However, with current property prices skyrocketing and even a modest 20% deposit beyond the reach of many would-be first home buyers, 5% has become a more common threshold. This is mainly due to the fact that 5% is the minimum deposit required to be eligible for the FHBG, meaning some first home buyers will only need 5% of a property’s value saved before they can potentially purchase it with government assistance.
Something worth keeping in mind, however, is the fact that you’ll also need to account for costs on top of your saved 5% deposit. This includes fees and upfront costs that can’t be rolled into your home loan, including:
LVR is your loan-to-value ratio, which shows how much you’ve borrowed relative to the value of the property in question. This means your LVR will be affected by the size of your deposit.
For example, if you borrow $480,000 to help purchase a $600,000 property, your deposit is 20%, meaning you still owe 80% of the property’s value to your lender. In this instance, your LVR would be 80.
A higher LVR could lead to a bank imposing a higher interest rate on your home loan, due to its perceived higher risk.
Generally speaking, if your LVR is above 80 (i.e. your deposit is below 20%), your lender could make you pay lenders mortgage insurance (LMI) as a condition of your home loan.
LMI is an insurance policy that lenders can utilise to protect themselves against the risk of a borrower defaulting on their home loan repayments. Having to pay LMI can often cost you thousands of dollars either upfront or over the life of a home loan and can drive up the loan amount and ongoing costs of buying a home – however, it can also be the difference between being able to purchase a home or not, so it could ultimately represent a net positive for some homebuyers.
As discussed, however, the FHBG can help you avoid paying LMI by guaranteeing up to 15% of your property’s value, with a minimum of 5% required on your end. This means that you have your 20% deposit in total and will not be required to pay LMI if you meet the FHBG eligibility criteria.
There are some other home buying costs you might have to pay for, like stamp duty, insurance and conveyancing, which we’ve outlined below.
As mentioned, stamp duty is a type of tax imposed by states and territories during the sale of a property. Stamp duty costs vary in each state and territory, but in most cases, will be in the thousands or tens of thousands of dollars.
Below is a table illustrating how much stamp duty homebuyers would pay nationwide, based on each state or territory’s average dwelling price and stamp duty rates.²⁰ Average dwelling prices are for the December 2022 quarter, and our stamp duty calculations are an estimate and do not account for any exemptions or concessions you may be eligible for.
| State/Territory | Average dwelling price | Stamp duty payable |
| ACT | $929,000 | $30,601 |
| NSW | $1,130,500 | $46,377.50 |
| NT | $488,200 | $22,985.32 |
| QLD | $738,800 | $19,096 |
| SA | $644,300 | $29,266.50 |
| TAS | $649,600 | $24,605.50 |
| VIC | $894,400 | $48,734 |
| WA | $630,300 | $23,954.25 |
Most of Australia’s states and territories either waive or discount stamp duty for first home buyers, making it less of an obstacle to home ownership. However, property price caps apply, so check your state or territory’s relevant caps before applying for a concession or exemption.
You’ll generally want to be ahead of the game when it comes to home insurance, as most lenders will only arrange for settlement after being named as the financial institution on a home insurance policy attached to the property in question.
While you can be approved for a home loan before having home insurance, lenders will generally need you to have insurance before taking ownership of the property.
However, exact timelines will vary depending on your state or territory. In some states and territories, the buyer becomes responsible for any damage to the property on or after the settlement date. In others, they may become responsible as soon as the contract is signed. This may affect your decision as to when you formally take out a home insurance policy. Still, it’s generally a good idea to act as early as is feasible and reasonable.
The only notable exception is for properties under strata title, in which case insurance may be arranged and paid for through strata fees and levies.
You can compare home and contents insurance and landlord insurance for free with Compare the Market.
Building and pest inspections are not compulsory in most cases but are highly recommended. These inspections and other due diligence enquiries can help identify any potential problems with a property, potentially lowering the asking price or even helping you decide against buying it.
While you may be reluctant to opt into yet another cost, outlaying a little extra cash before buying a home is better than finding out it’s termite-ridden after you’ve bought it.
It’s generally recommended (and often required) that you engage a conveyancer or solicitor ahead of your settlement date to check the legalities of the contract of sale, help you conduct due diligence on the property and ensure the official process runs smoothly. Unless you’re a lawyer by trade, trying to navigate the legalities of the homebuying process yourself is not recommended.
Read more about conveyancers here, including how much they can cost and what they can do for you.
If you’re ready to take the plunge and apply for a home loan for your dream property, there are a few things you should think about doing first.
Borrowing power is the maximum estimated amount you’ll be able to borrow for a home loan. This is calculated using things like income, your household expenditure, deposit size, number of dependents and desired home loan term.
You should get an understanding of your borrowing power before applying for a home loan so you have a general idea of how much you might be eligible to borrow.
It may be a good idea to seek pre-approval on a loan before you make any offers on a home. Home loan pre-approval can give you a much more accurate understanding of your borrowing power and what type of home you can realistically afford. It can also help you avoid wasting your time on properties you can’t afford in the first place.
When you’re in the market for a home loan, each lender will have specific eligibility requirements you’ll need to meet. Some of them are common across most lenders (e.g. being 18 years of age or older, and being a permanent resident of Australia), but others may be more niche and specific to one lender.
Check the key fact sheet or ask about lender requirements before you apply.
As you can imagine, when you apply for a home loan, you’ll need to submit some documents. These can include, but aren’t limited to:
For more details on what info you might need to submit, we’ve compiled a list of the most common documents you’ll need.
It’s vital that you compare a broad range of home loan products based on your needs, and look at things like interest rates, fees, repayment types, features and loan terms.
Stephen has more than 30 years of experience in the financial services industry and holds a Certificate IV in Finance and Mortgage Broking. He’s also a member of both the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and the Mortgage and Finance Association of Australia (MFAA).
Stephen leads our team of Home Loan Specialists, and reviews and contributes to Compare the Market’s banking-relating content to ensure it’s as helpful and empowering as possible for our readers.
If you’re ready to finally get a leg up on the property ladder and buy your own home, let Compare the Market help you. With the help of our home loan comparison tool, you can compare home loans based on their interest rates, fees, the account features available for your loan type, how much monthly repayments might be and more.
Our step-by-step journey can help make the whole process of buying your own home a lot less daunting. So, what are you waiting for? Compare home loans with Compare the Market today!
