First home buyer

You have never owned property in Australia and you are trying to work out whether you can buy, how much you need, and whether any of the government schemes apply to you. Most people arrive with a rough savings figure and no idea whether it is enough.

It is worth talking to a broker earlier than most people do. The useful conversation is not the one after you have found a house. It is the one where you find out what you can borrow, what you actually need saved, and which schemes you qualify for, before you start looking.

Almost everyone assumes the hard part is affording the repayments. For most first home buyers the repayment is manageable and the deposit is what takes years. That is why the schemes designed to help first buyers are almost all aimed at the deposit rather than the rate.

Twenty per cent is the level at which lenders stop charging Lenders Mortgage Insurance. LMI is a one-off premium that protects the lender, not you, and it can run to many thousands of dollars. Saving to 20% avoids it entirely.

Five per cent gets you in the door years earlier, and under the First Home Guarantee the government guarantees the gap so no LMI is charged. Places are limited and eligibility criteria apply, and the repayment is higher because the loan is bigger. The example below shows both sides of that honestly.

A guarantor is the third route. A parent uses equity in their property as additional security so you can borrow without LMI. It works well, and it puts their property at risk if you cannot repay, so everyone involved should get their own advice first.

Whether waiting to save 20% or buying sooner with 5% is better depends on what property prices do while you save, which nobody knows. That is a genuine judgement call, not a question with a right answer, and we will lay out both rather than push you towards the bigger loan.

Australian first home buyer assistance comes from two places: the federal government and your state or territory. They stack in some combinations and not others, and the rules change regularly.

First Home Guarantee. Federal. Lets eligible first buyers purchase with a small deposit while the government guarantees the balance to the lender, so no LMI is payable. Places are capped and property price limits apply by region.

Family Home Guarantee. Federal. A similar arrangement aimed at eligible single parents, with a lower deposit requirement again.

First Home Owner Grant. State by state. A cash grant, generally restricted to newly built homes, with the amount and the rules differing in every state and territory.

Stamp duty concessions. State by state, and often the largest saving of the lot. Thresholds change with state budgets, so check the current position for your state rather than relying on what a friend paid two years ago. Our stamp duty calculator covers every state and includes first home buyer concessions.

Eligibility, caps and availability are set by government and change without much notice. We check what currently applies to your situation rather than working from a list.

From first conversation to keys is commonly three to six months, most of which is spent finding a property rather than arranging finance. The steps below are indicative.

1. Find out where you stand. Borrowing capacity, the deposit you actually need including costs, and which schemes you qualify for. Free, and worth doing before you look at a single listing.
2. Fix anything fixable. Closing unused credit cards, clearing a small debt, or tidying up spending for a few months can move your borrowing capacity more than shopping for a better rate.
3. Pre-approval. Lets you bid or make an offer knowing your limit. It is conditional, it can be withdrawn, and it usually expires after about three months, so it is a strong indication rather than a promise.
4. Offer and full application. Once you have a contract, the lender assesses the application against its own criteria and values the property.
5. The lender decides. If the lender approves, formal approval is issued and loan documents follow. Approval is the lender's decision alone, and it is never certain until it is given.
6. Settlement. Your conveyancer and the lender settle with the seller, and the property is yours.

The deposit is not the only cash you need. Stamp duty, conveyancing, inspections and lender fees all land before settlement, and they are the reason people who thought they had enough saved find out they do not. Budget for them from the start.

Pre-approval is conditional. It is not a guarantee, it can be withdrawn if your circumstances change, and it does not cover the property. A lender can approve you and still decline the specific house if the valuation comes in low or the property type is one it will not lend against.

Watch your spending in the three to six months before you apply. Lenders read your actual transaction history, not an estimate. Regular buy-now-pay-later use, gambling transactions and a large unused credit card limit all reduce what you can borrow.

Borrowing the absolute maximum is rarely wise on a first home. Rates move, and the loan that is comfortable at today's rate may not be at a rate two percentage points higher. Lenders test for that; it is worth testing it for yourself too.