Compare Home Loans For First Home Buyers - Australia

You’re ready to stop paying rent and get into your own home, but trying to choose a home loan can be overwhelming. This can be particularly true when you’re buying your first home, and have never dealt with a home loan before. The range of options and prevalence of financial language can make finding a suitable first home buyer home loan almost as difficult as navigating a minefield at night.

That’s why we put together this guide. It’s full of information to help you compare a range of first home buyer home loans, so you have tools to help you choose a suitable home loan that could land you in your first home.

A first home buyer home loan is one of a range of products and services marketed toward people buying their first residential property. It can be used to buy any type of home (e.g. new, existing or off the plan. They’ll generally include features that appeal to first home buyers. However, in most cases these types of products are simply marketed towards first home buyers, so you may not have to be buying your first home to apply for and be approved for one.

Don’t confuse a home loan for a first home buyer with the many first home buyer (owner) grants or schemes. The government grants are only for eligible people buying their first home, and only if the property and buyer meets specific requirements.

Home loans for a first home buyer work just like any other home loan. You apply for a loan, your application is assessed, and you have to sign a contract if you’re offered a loan. You have to make mandatory repayments and pay interest. And you can still refinance a first home loan if you need to.

All home loans, not just those marketed towards first home buyers, will include an array of features, some of which include:

• The opportunity to have a guarantor on your loan (someone, such as a family member, who has a good credit history that provides a level of guarantee that you will make your repayments). This may help negate the need to pay lenders mortgage insurance if your deposit is under 20 per cent.
• The option to buy with a smaller than normal deposit, depending on the circumstances. For first home buyers, this could include compatibility with the First Home Guarantee scheme, depending on eligibility.
• Interest only home loan options (instead of repaying the principal and interest). Although this is generally not recommended as this can increase the overall cost of the loan
• Redraw facility that can allow extra payments to be withdrawn in certain circumstances
• Offset account
• Loan portability (portable loans may be able to be transferred to another property if you sell before you pay off your loan)
• Fixed, variable or split interest rate options

While many of these features may be included in the cost of the loan, some may result in paying higher fees in comparison to a more “no frills” mortgage option, depending on the lender you choose.

There are many different home loan options available, but a home loan for a first home buyer is designed to appeal to those who are purchasing their first home in Australia. In some cases, these home loans will offer features that can be more appealing to first time buyers.

Some first home buyer home loans can include:

• Compatibility with First Home Guarantee. In Australia, the government has a First Home Guarantee that allows eligible first home buyers to purchase a home with a deposit of as low as 5 per cent. There are limited places each year, and the lender you choose must be registered with the scheme.
• Ability to use a guarantor. A guarantor can help reduce the burden of Lenders Mortgage Insurance (LMI) where you have a deposit of less than 20 per cent. In some cases, a guarantor can also help make it easier for you as a first-time buyer to get approved for a home loan, even with a lower deposit.

A mortgage broker can also be a great resource for a first home buyer, because they can help review the benefits and drawbacks of a range of products and lenders. Mortgage brokers or a lending manager at your preferred bank should be able to assist with the many forms of state and federal government assistance to help you check your eligibility.

It's also worth noting that first home buyer home loan applicants may be eligible for certain government schemes and grants, such as the First Home Loan Deposit Scheme or state based First Home Owner Grants. These schemes and grants can provide additional financial support, and in some cases can help you secure a home loan with a deposit of less than 20 per cent.

The maximum amount you can borrow in Australia as a first home buyer will depend on a range of factors, including:

• The property's value and location
• The lender's policies and eligibility criteria
• The size of your deposit
• If you have a guarantor or are eligible for any government grant or scheme
• Your financial situation.

The property you're planning to buy will play a role in determining how much you can borrow with your home loan. Your lender will consider the value of the property you want to buy, as well as any additional costs associated with the purchase, such as stamp duty, conveyancing fees and lenders mortgage insurance (LMI).

When it comes to the lender's requirements, different banks and lenders will have their own policies around first home buyer home loans. It can help to shop around and compare home loans from a range of lenders to find one that suits your needs.

The minimum deposit you’ll need to save varies depending on several factors, including the purchase price or value of the property, the lender's lending policies, and the type of loan you choose.

If you’re looking to avoid Lenders Mortgage Insurance (LMI) without additional assistance, such as a guarantor, then the minimum deposit will generally be 20 per cent of the property value.

An eligible first home buyer accessing the First Home Guarantee Scheme with a participating lender will typically need a deposit of at least 5 per cent of the property value.

To help first home buyers save for a home loan deposit, the Australian Government introduced the First Home Guarantee, to help eligible buyers purchase a property with a deposit as low as 5 per cent without having to pay LMI. The scheme has limited places each year, and strict eligibility criteria apply.

In addition to the deposit, you’ll also need to consider other upfront costs associated with buying a property, which could include stamp duty, conveyancing fees, and building and pest inspection costs.

There is other assistance available for eligible first home buyers that includes state based First Home Owner Grants and stamp duty concessions, and the First Home Super Saver Scheme, which allows eligible first home buyers to make limited voluntary contributions to their superannuation fund to save for a home deposit.

There are also a range of other costs that you may face when looking to purchase a property. These can include:

• Lenders mortgage insurance (LMI). If you have less than a 20 per cent deposit, and you’re not accessing the First Home Loan Deposit Scheme or using a guarantor, the lender may require you to pay LMI. This insurance protects the lender in case you default on the loan. LMI can add thousands of dollars to your home loan, and the amount varies depending on the loan size, deposit size, and other factors.
• Stamp duty. Stamp duty is a tax charged by the state or territory government on the transfer of property. The amount of stamp duty varies by state or territory, and is calculated based on the property value, the purpose of the purchase, and other factors. First home buyers may be able to access stamp duty concessions or exemptions, depending on their state or territory and eligibility requirements.
• Conveyancing fees. You may need to hire a solicitor or conveyancer to handle the legal aspects of buying a home.

Interest charges are a fee charged by a lender for borrowing money. This fee is calculated as a percentage of the outstanding loan balance and is payable on top of your loan principal payments. Interest charges can vary depending on a range of factors, including the loan amount, the interest rate, and the loan term.

A home loan calculator, such as the one found on MoneySmart, is a great way to calculate the estimated interest charges on your home loan.

To do this you’ll need to know the interest rate, loan amount and loan term to get an estimate of your repayments and interest charges.
Once you know your interest rate, you can use a home loan calculator to work out the repayments and interest charges on your loan. A home loan calculator will take into account the loan amount, interest rate, and loan term to provide an estimate of your repayments and interest charges.

It is important to remember that interest rates are not fixed (unless you choose a fixed rate home loan, in which case the rates will be fixed for a set period), and they can increase or decrease over time. This means that it is important to budget for potential interest rate increases to avoid financial strain in the future.

If we could tell you which home loan for a first home buyer is the very best, there wouldn’t be any need to make a choice because there’d only be one loan!

So, once you’re sure you’re ready to commit to a first home buyer home loan, you may want to compare a range of home loan options. By comparing home loans, you can be confident you’ll have information to help you choose a first home buyer home loan that’s suitable for you.

Our main home loan comparison page includes a guide to comparing home loans. You can update it for first home buyer loans, by adding these questions into the mix:

• How much of the property purchase price have you saved as a deposit?
• If it’s less than 20 per cent, does the lender offer loans to people who have a deposit of less than 20 per cent?
• Is someone, such as a parent, willing to act as your guarantor?
• Are you eligible for any state government first home buyer assistance or the federal government First Home Guarantee (for those with a low-deposit)?

And don’t forget to read the full terms and conditions for each loan to ensure you don’t miss any vital information.

The first step in the home loan process is to find a lender that offers home loans to first home buyers. You can do this by comparing a range of loans, starting at the top of this page, or by speaking to a mortgage broker. Once you’ve selected a lender, you can begin your application process.

The time it takes to complete a home loan application for a first home buyer can vary, depending on the complexity of your financial situation, the complexity of your application, and the lender. In general, the application and approval process can take anywhere from one to six weeks. During this time, you’ll be required to provide a range of documents to support your application, including payslips, bank statements, and identification documents.

The lender may also conduct a valuation of the property being purchased to ensure that it is worth the amount being borrowed.

Assuming that your application is approved, the lender will provide you with a loan offer, outlining the terms of the loan, including the interest rate, the loan amount, and the repayment schedule. If you accept the loan offer, the lender will work with your conveyancer to begin the settlement process. This is the process of transferring the funds from the lender to the seller, and will be based on the settlement date agreed within the sales contract.

Refinancing is available to anyone with a home loan, and that includes first home buyers. Let's explore the process and benefits of refinancing your first home buyer home loan.

The refinancing process

The process of refinancing your home loan involves taking out a new loan to pay off your existing one. This new loan will usually be from a different lender, with different terms and conditions. Before applying to refinance, it's important to consider your current financial situation and compare rates and fees from various lenders. It's also important to ensure you're able to make the repayments on your new loan, as well as any associated fees.

In addition, if you have paid lenders mortgage insurance (LMI) on your first home loan, check to see if you will need to pay this again. LMI can add thousands to your loan and might outweigh any benefits of refinancing.

Benefits of refinancing

There may be many benefits to refinancing your first home loan, including:

Any loan can have an impact on your credit score, but this may be positive or negative. Your credit score is based on factors such as your payment history, credit utilisation, length of credit history, and new credit accounts. Let’s take a closer look at what effect a home loan can have on your credit score.

Limiting the number of applications you make for credit can help preserve your credit score. For example, the act of applying for a home loan can have a negative impact on your credit score. This is because the lender will run a credit check on you that will show up on your credit report as a hard inquiry. Hard inquiries occur when a lender or creditor checks your credit report as part of the loan application process.

While a single hard inquiry may not have a significant impact on your credit score, multiple inquiries can start to add up. In addition, being declined for a loan can also have a negative impact on your credit score.

This is why it's important to only apply for home loans that you are confident you’ll be approved for.
Once you’ve been approved for a home loan, your credit score can be impacted in several ways. One of the most significant impacts is related to your payment history. Making your mortgage payments on time is crucial to maintaining a good score.

On the other hand, missing payments or making late payments can have a negative impact on your credit score. When you’re considering a first home loan make sure you budget carefully and that you have enough money to cover your mortgage payments each month, along with other cost of living expenses.

The eligibility criteria for a first home buyer loan is much the same as for any other kind of home loan. The lender has to believe you can repay your loan, and you are buying a property a lender believes is a suitable security for if you don’t repay your loan. Home loans tailored to first home buyer loans are usually marketed towards owner occupiers (there can be similar loans for investors, though). Apart from that, whether you can secure a home loan will come down to whether you meet the individual lender’s lending criteria.

Typical lending criteria are related to things like:

• Your income
• Whether you have any other debts
• Your expenses
• Whether you’re single or have a partner
• Whether you’re borrowing by yourself or with someone else
• Whether you have any children or other dependents
• Your credit score (a number that indicates how trustworthy you are when it comes to repaying debt)
• Your credit history (whether you’ve repaid previous debts, how much credit you’ve applied for and when, etc.)
• The size of your deposit

While many lenders want their borrowers to have a deposit of at least 20 per cent of the value of the property, some home loans may only require a deposit of 10 per cent or even 5 per cent of the property (and lower in some rare cases). These loans will usually have a need for Lenders Mortgage Insurance (LMI) to be paid. Your ability to get a loan with a lower deposit, and minimise the impact of LMI, may be helped if you have a family member act as a guarantor on the loan, or if you have access to the First Home Guarantee scheme.

It may be easier to get a home loan if you have a full-time job. However, if you work part-time, have a casual job, are self-employed, or even if you’re a post-doctoral student with a scholarship, you may still be eligible for a home loan. It’s always best to check the eligibility criteria with the lender before submitting an application.

Applying for a first home buyer loan can be as simple as filling in an application form. But it’s best to do a bit of preparation first. The below may help:

• Use one of the many internet borrowing power calculators to get an estimate of how much you might be able to borrow based on your income, expenses and any dependents you might have.
• Take a look to see if there are properties at or below that price in the area you want to live that also meet your needs and preferences.
• Gather together as much of a deposit as you can. If it’s not 20 per cent, see what you can do to increase it. For Example, figure out how long it would take you to save up the rest. Is that a reasonable time given your plans? Can you borrow from family or friends? Do you know someone who’d be willing to be a guarantor for you? Note, you may have heard of a variety of first home buyer schemes, such as the First Home Guarantee, New Home Guarantee and the Family Home Guarantee. This scheme could help you buy a property with just a 2 per cent deposit depending on the eligibility requirements.
• Compare a range of loans using our first home buyer loan guide to find a suitable option for you.
• Speak to a mortgage expert at your preferred lender or a mortgage broker if you’d like more information. Tell them which loan you’d like to apply for and ask them about eligibility and lending criteria, so you can get a feel for whether the lender is likely to grant you a loan and whether the lender might offer the loan amount you need. If you don’t do this and your application is rejected, that may result in a ‘mark’ on your credit history. And if you submit multiple loan applications over a short period of time, that could be another ‘mark’. So, it’s best to find out whether you’re in with a chance before you apply.
• Complete an application and submit it along with all the supporting documentation required by your chosen lender.

You might choose to apply for pre-approval and then find a home to buy before you actually apply for real. That way you can shop for a home knowing roughly how much you should be able to afford, and then you can ask for the actual amount you need when you submit your full application.

It’s important to remember that pre-approval is not a completed approval, and should be treated as an indication of your borrowing ability rather than an approval guarantee. Final approval will only be granted once the full application has been assessed - usually after the contracts are done for the purchase of a property.

Instead of trying to provide specific advice to cover every conceivable set of circumstances a first home buyer might find themselves in, we’ve given you facts to help you understand how this kind of loan actually works. Then we’ve laid out simple, easy-to-use questions to help compare a range of options, for these and other kinds of loans. This means you’ll always have tools to help you pick a home loan, or any other kind of credit.