First home buyer mortgage guide: 7 top FAQs answered

Woohoo, you’re buying your first home. It’s exciting, isn’t it? What’s not exciting can be the process of choosing a home loan. That bit can be pretty daunting.

But it doesn’t have to be if you can find information that answers some of your key questions and helps you decide on a suitable loan for your needs. That’s what this first home buyer mortgage guide is all about.

This hierarchy of repayments is an important concept for any mortgage holder because if you don't pay off your home loan, your lender can sell your property to recover any unpaid debts. Any second and subsequent mortgages you might take out on a property are secured against the property just like the first. But in the event that the property is sold to recover unpaid debt, the issuer of the second mortgage would only be paid once the original loan was paid in full. The lender of the first mortgage must authorise any second (or third) mortgage, and therefore could choose to prevent a second mortgage from being obtained.

This also means subsequent lenders may rate their chances of recovering the debt as being a greater risk and may therefore charge higher interest rates.

This also means subsequent lenders may rate their chances of recovering the debt as being a greater risk and may therefore charge higher interest rates.

Why is this significant? Well, if you don’t take out a suitable first home loan, you may end up needing to take out a second or subsequent mortgage to pay for other expenses. The above illustrates one reason why it’s in your best interests to get your first mortgage right!

Ok, so that covers multiple mortgages on the same property. Now we’re looking at subsequent mortgages on subsequent properties.

Your first home loan will be very much like your second and any subsequent loans. Some lenders offer home loans specifically targeted at first home buyers, but their features aren’t necessarily any different from other home loans. They just have a combination of features that tend to be more appropriate and appealing for people buying their first home.

So, the main differences between your first mortgage and any mortgages you might have after that are:

• The features you choose might be different to reflect your changing financial and personal circumstances
• You’ll only have access to special first home buyer schemes and incentives when you buy your first home as an owner occupier, not an investor

Unless you have specific ethical, moral or values-based reasons for choosing or excluding particular home loan providers, the choice of first home loan provider often comes down to which lender has the loan and services you want.

There’s no perfect loan, and not every loan will work for every borrower. So, it can be a good idea to compare a range of home loans before you dive right in and apply for your first mortgage. Some of the factors you might think about while comparing loans include:

• The interest rate - a low interest rate may mean a lower total loan cost, but there may be other factors that matter to you or that could lower the total cost of a loan in another way.
• The comparison rate - this includes the interest rate and many of the standard fees for a loan, which allows you to better compare loans that have different combinations of rates and fees.
• The home loan rate type - is it fixed for a period of time or is it variable, or maybe even a combination of both? Fixed rates allow you to confidently calculate your repayments, but a variable rate may provide you more flexibility.
• The features of the loan - for example, an offset account or redraw facility might be helpful for you, depending on your future needs.
• Introductory offers - depending on when you’re looking to get into the market there may be a range of helpful special introductory arrangements available, such as a lower interest rate. It's important to consider how these introductory sweeteners might affect the overall cost of the loan in the long run.

“Once you have that information you need a way to sort it,” he said. “My recommendation is to approach it assuming that you’ll be refinancing to another bank in two to three years. Because that’s as long as you should stay with any bank. Why? New clients get all the best deals, so you need to regularly become a new client.”

Mr Wheatley said it was also worth comparing the mortgage insurance of different banks.

“If bank A has a rate that’s $1000 a year cheaper but their mortgage insurance is $4000 more, they may not be the best option,” he said.

For more detailed information about how to compare loans, take a look at our comprehensive first home buyer home loan guide, which includes step-by-step questions to help compare a range of loans. In addition, you might also consult a mortgage broker for more personalised help.

In Australia, due to the high cost of property, there is a range of support available to first-time buyers to help them get into the property market. The schemes available vary depending on State and Federal government policies and can change as governments win and lose elections. Below is information about the various schemes as at July 2022.

Each scheme has its own eligibility criteria, though all require you to be buying a home to live in (as in, you can’t use first home buyer support programs to buy an investment property). In addition, some are limited for a specific amount of time, while others are limited to a specific number of successful applicants. So, you’ll need to research whether you can apply for each one. We’ve provided links to further information to help you with that process:

Stamp duty is a State/Territory government tax on some kinds of transactions like the sale of properties and cars. Some State and Territory governments discount or waive stamp duty for eligible first home buyers.

The below is a brief summary of the current stamp duty concessions available around Australia, but note each scheme has certain requirements and eligibility criteria meaning it may not necessarily be relevant to you.

• NSW currently offers first home buyers a full or partial exemption from transfer duty (also known as stamp duty) for homes no more than $1 million and allows buyers to defer off-the-plan stamp duty for up to 12 months.

• The ACT waives stamp duty on off-the-plan units up to $600,000 for homes bought after April 1, 2022. From July 1, 2019 it has also been waiving stamp duty for first home buyers earning less than a specified amount, which varies depending on whether you have kids and if so, how many.

• Queensland discounts stamp duty for eligible properties valued at under $550,000.

• Tasmania provides a 50 per cent discount on stamp duty for homes with a property price up to $600,000. This is for first homes bought between January 1, 2022 and June 30, 2023.

• Victoria provides a stamp duty exemption for properties up to $600,000 and a concession for homes up to $750,000. This scheme is for first homes bought after July 1, 2017.

• The Northern Territory offers a stamp duty exemption for people buying house and land packages between July 1, 2022 and June 30, 2027.

First home owners’ grants help prospective first home owners get into their house sooner, with no obligation to repay the money, unlike a loan. The grants are an ever-changing, federally-funded program administered by the States and Territories. You can look up eligibility criteria, program and application guidelines here:

• ACT
• NSW
• NT
• QLD
• SA
• TAS
• VIC
• WA

The First Home Guarantee was previously called the First Home Loan Deposit Scheme. Under this scheme, the Federal government may guarantee up to 15 per cent of your home loan, which could allow those eligible to buy a home with only a 5 per cent deposit and without paying lenders mortgage insurance (LMI). There are up to 35,000 places available in the scheme from July 1, 2022 to June 30, 2023.

The Family Home Guarantee is available to single parents. If eligible, the government may guarantee up to 18 per cent of your home loan, which could allow you to buy a home with only a 2 per cent deposit and without paying LMI. There are up to 5,000 places available in the scheme from July 1, 2022 to June 30, 2025.

Yes! Australians can build the first home they own. Just remember, if you’re renting, you may have to keep renting while your house is being built, continuing to factor that expense into your budget on top of build costs. And you’ll usually need to begin repaying your home loan before construction of your home is complete, so for some of the build you may be paying rent and a mortgage.

There are pros and cons to building a new home vs. buying an existing home. These might include being able to choose how you want your dream home to look with a build but also having to factor in project delays and unexpected supply and labour costs, and with existing homes you might find you could potentially move in faster but also have to factor in higher maintenance costs, especially if it’s an older building. Be sure to investigate the disadvantages of building compared to buying an existing home thoroughly before deciding to build your first home to make sure it’s the right move for you.

What you can afford to pay for a property now and how much you can safely borrow are closely related. However, if you don't accurately assess your financial position or your circumstances change, you might accidentally borrow more than you can comfortably afford to repay.

Lenders will base their loan offers on how much they think you can afford to repay. They look at factors like:

• Your income
• Whether you have any other debts
• Your other 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)
• If you’re applying as an owner-occupier or investor

There are plenty of free borrowing power calculators on the internet that can help you estimate how big a loan you might be able to afford. Just be aware that they don’t necessarily take into account the other costs of buying property, like stamp duty, conveyancer fees, building and pest inspection fees and removalist costs, nor do they take into account your personal financial situation.

You might find it interesting and informative if you run various scenarios through a calculator to see how much you could borrow if you reduce your spending or some other factor changes.

If you’re planning to buy soon, you might like to apply for loan pre-approval, so you can be more confident about which properties you can afford.

To get started on your loan application, you'll need to prove your identity. This requires you to provide primary identity documents, such as:

• Australian passport
• Foreign passport
• Australian driver's licence

Also, you might need secondary documents, such as:

• Australian birth certificate
• Australian citizenship certificate
• Medicare card
• Australian Taxation Office assessment notice (less than 12 months old)

Then you'll need to show that you have capacity to repay a loan by providing proof of your income. This might involve providing several payslips, bank statements or a recent tax assessment. If you’re self-employed, you may need to provide several years’ worth of tax assessments.

If you’re receiving government benefits, you'll need to provide a bank statement or letter from Centrelink outlining your payments.

You’ll also need to provide evidence of all your assets and liabilities. So, that's things like superannuation statements and registration paperwork for cars on the assets side. On the liabilities side, that’s things like credit cards and the debts on them, credit limits and details of any other loans. Most lenders will also ask for information about your expenses, so you may have to provide bank statements.

Different lenders may ask for different documents, so you should check which documents are required by your lender when the time comes.