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 home loan interest rates

As a first time home buyer, it is important to know all the types of interest rates there are. 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-rate 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-rate 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-rate 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. See how to calculate it here: split loan calculator

How to get the best first home loan?

Getting the best first home loan will always depend on one’s financial situation. The best home loan for you might not work for somebody else. Yourmortgage.com.au has put together a list of factors to consider so you can get the “best” first home loan:

Choose the best repayment type according to your budget

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

• Principal and interest loan repayment

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

• Interest-only loan repayment

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.

Choose the best type of home loan interest rates

Home loan rates might also be fixed or variable – or, sometimes, both. A fixed rate loan keeps your repayments at a set interest rate across the repayment period, whereas a variable rate changes depending on the current market rate, thereby affecting the value of your repayments. Another option is a split rate, which means a portion of your loan stays fixed at a set rate, with the remaining portion at a variable rate. In this case, you can typically decide what percentage at which you wish to split the loan.

Check for the features and benefits of your first home loan

Below are some of the most common home loan features for first time home buyers:

• 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.

Applying for a mortgage as a first time home buyer

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.

Aside from this, here are some tips you should know for your home loan application journey:

Saving 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.

Knowing how much you can borrow as a first home buyer

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.

Preparing the documents 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

Government support and grant assistance 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.

Home Guarantee Scheme

One of the biggest support schemes first time buyers must not miss out on is the Home Guarantee Scheme, which includes the First Home Guarantee Scheme, the Regional First Home Buyer Guarantee, and the Family Home Guarantee.

Formerly called the First Home Loan Deposit Scheme, the Home Guarantee Scheme provides allows first home buyers to apply for a mortgage with as little as a 5% deposit. With the scheme, 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 packages, land and a contract to build a home, and an off-the-plan apartment.

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 for 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 Choice - This is for buyers who are purchasing a new or existing home with a value of up to $1.5m or vacant land on which they intend to build a home for up to $800,000. Eligible buyers will be given a choice to either pay the existing upfront stamp duty or an annual land tax.
• First Home Buyer Assistance Scheme - It offers a full or partial exemption on transfer duty for first-time buyers purchasing a property that has a value of less than $800,000.

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. There is also a version catered to first-home buyers with dependent children.

Queensland

• First Home Concession - This allows first-home buyers to claim a concession for transfer duty for homes valued under $550,000.
• First Home Vacant Concession – First home buyers get a discount on transfer duties when buying a vacant land valued under $400,000.

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 concessions that can remove or reduce stamp duty on the purchase of a home or vacant land.

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

South Australia does not currently offer other grants for first-home buyers aside from the First Home Owner Grant.