A Guide To Home Loans For First Home Buyers

Getting ready to buy your first home is an exciting time – but figuring out how first time home buyer home loans work can feel overwhelming. 

Saving the deposit you need can be a major challenge, and lenders all offer a wide range of different interest rates, terms and conditions, and fees and charges.

Getting a First Home Loan - Why Compare?

Understanding interest rates can be confusing for first home buyers. While the Reserve Bank sets the official cash rate, lenders typically only use this as a guide to set their own home loan interest rates. That means different lenders offer different interest rates for first time home buyer home loans.  

So comparing lenders can help you find the best interest rate, and save you significant money over time. But that’s not the only reason to compare lenders.  

Lenders may apply different terms and conditions to a home loan for a first home buyer. Comparing lenders can help you find the most favourable repayment schedule, loan term, and prepayment penalties. 

Loan fees and charges also vary between lenders, so the comparison process can help to highlight how much each loan with actually cost beyond the interest rate charged. 

Lenders may also offer different interest-only or fixed-interest rate periods on first time home buyer home loans to help get you started.

Available Concessions

The need to save a sizeable deposit can be a major challenge for first home buyers. Many sources recommend saving a 20% deposit for your first home, which can be almost impossible for many first home buyers. 

• But there is help available:The First Home Guarantee (FHBG) – formerly known as the First Home Loan Deposit Scheme (FHLDS) – enables an eligible first home buyer to buy a home with as little as 5% deposit without paying Lenders Mortgage Insurance. 

• The First Home Owner Grant (FHOG) scheme offers a one-off grant to eligible first home buyers. Grant amounts and eligibility criteria vary from state to state.

• The federal government’s proposed Help to Buy scheme could reduce the minimum deposit to as low as 2% for eligible homebuyers. However, the scheme will need to pass parliament before it comes into effect. 

Stamp duty concession

The FHBG & FHOG aren't the only way that governments allow new homeowners to save some extra money. They also allow many buyers to have a break on stamp duty for their first home. Stamp duty is the tax you pay on the property you buy.

It will depend on the value of your home, but you may be able to get a break if it's your first time buying. Each state has different rules and restrictions regarding their stamp duty concession, and these do change over time.

With the exception of South Australia, all states and territories offer some form of stamp duty concession for those who are buying their first home.

State Based Differences: First Home Guarantee

The government sets maximum purchase prices for homes purchased under the First Home Guarantee/First Home Loan Deposit Scheme.

These price caps vary between state capital cities, regional centres and other areas.

The First Home Guarantee/First Home Loan Deposit Scheme 2024: Property price caps by state and territory.

Regional centres includes Newcastle, Lake Macquarie and  Illawarra in NSW, Geelong in VIC, and Gold Coast and Sunshine Coast in QLD.

Finding the right loan

Once you have your deposit saved, it's time to start looking for a lender to finance the rest of your purchase. You have several options and will need to make several choices along the way.

Here are a few things to think about before getting started:

Fixed or variable rate?

The first -- and most common -- consideration you'll need to make is whether or not you want a fixed or variable rate loan. Rates on fixed rate loans stay the same for a period of about one to five years -- depending on the lender and the option you select. They usually come at a higher rate than a standard variable loan, but you have the security of knowing your repayments every month.

Variable rate loans change with the market. When market rates are low, variable rate loans can be more appealing. Just keep in mind that your variable rate can get higher or lower over the course of your loan. It helps to research current market trends before you choose a loan, and a lender. Our calculators can help you work out some numbers - so can our Compare Club experts.

If experts predict an interest rate hike, a fixed rate loan might be a better bet. If they think they'll stay the same or lower, a variable rate loan could be cheaper. You can also have a "best of both worlds" strategy by splitting your loan. Variable rate loans often come with more features like early repayments, offset accounts, and redraw facilities.

You can access these features and get the security of fixed repayments for a portion of your loan when you split it.

What is the First Home Owner Grant?

The First Home Owner Grant (FHOG) is a one-off grant given to first home buyers to help them purchase their own home. The size of the grant differs depending on the state or territory in which your new property is located. There are other first home buyer benefits available to you as well. Again, these depend on the state you’re buying to live in. Some of these benefits may include:

• Stamp duty exemptions (stamp duty is sometimes referred to as transfer duty in some states)

• Stamp duty concessions

• Grants for building a new house on purchased property

All these benefits are intended to incentivise and assist first home buyers to purchase their first home.

Can you get the First Home Owner Grant on an established house?

Grants aren’t limited to just buying houses. They may be used for any form or residential property including townhouses, apartments, units and the like.

While the exact benefits differ across the country, the First Home Buyers Grant may be used to purchase an existing home, so long as it meets the following key points:

Key Terms

• Reserve Bank: The Reserve Bank of Australia (RBA) is responsible for monetary policy, issuing currency, and overseeing the stability of the financial system. It sets the official cash rate, which influences interest rates in the economy, including those for home loans.

• Official interest rate: Also known as the cash rate, it is the interest rate set by the Reserve Bank of Australia (RBA) that banks use when lending funds to each other overnight. Changes in the official interest rate often lead to corresponding changes in mortgage interest rates.

• Repayment schedule: A repayment schedule outlines the dates and amounts of payments due on a loan, including both principal and interest, over the life of the loan. It helps borrowers understand their financial obligations and manage their budgets.

• Loan term: The loan term refers to the length of time over which the borrower agrees to repay the loan. In the context of home loans, it is typically expressed in years, such as 15, 20, or 30 years.

• Prepayment penalties: Prepayment penalties are fees charged by lenders if borrowers pay off their loans before the scheduled repayment date. Prepayment penalties are not as common for home loans, but they can still exist in some cases.

• Interest-only: An interest-only loan is a type of loan where the borrower only pays the interest on the loan for a specified period, usually for the first few years of the loan term. After the interest-only period ends, the borrower must start repaying both the principal and interest.

• Loan principal: The loan principal  It is the initial sum that the borrower receives to purchase the home and is obligated to repay over time, typically along with interest.

• Fixed interest rate: A fixed interest rate remains constant for a specified period, typically between one and five years, regardless of changes in the official cash rate or market interest rates. This provides borrowers with certainty about their mortgage payments during the fixed period.

• Variable interest rate: A variable interest rate can change periodically over the life of the loan in response to changes in the official cash rate or market interest rates. Borrowers with variable-rate mortgages may experience fluctuations in their mortgage payments over time.

• Debt consolidation: Debt consolidation involves combining multiple debts, such as credit card balances, personal loans, or other debts, into a single loan, often with a lower interest rate. This can simplify repayment and potentially reduce overall interest costs.

Frequently asked questions

What is a First Home Loan?

A First Home Loan refers to a mortgage that is designed to assist first home buyers in purchasing their first property. These loans may come with special features or incentives to help make home ownership more accessible for eligible individuals or families.

How do First Homes Loan work?

First Home Loans typically work like traditional mortgages but may offer additional benefits or assistance tailored to first home buyers. These benefits may include lower deposit requirements, government grants or schemes (such as the First Home Loan Deposit Scheme), or reduced fees.

Eligibility criteria, loan terms, and available benefits can vary depending on the lender and the specific loan product.

How do you consolidate debt?

Debt consolidation involves combining multiple debts, such as credit card balances, personal loans, or other liabilities, into a single loan with a lower interest rate or more favourable terms. This can make managing debt more straightforward and potentially reduce overall interest costs.

Can you consolidate debt into home loan? Yes. Consolidating debt into a home loan is often known as debt consolidation refinancing. It essentially means that homeowners can use the equity in their property to refinance their mortgage and roll high-interest debts, such as credit card balances or personal loans, into their new refinanced home loan. However, this is most likely not available for a home loan for a first home buyer who does not have the required equity.  

How can I apply for First Home Guarantee/First Home Loan Deposit Scheme?

Applications can be made through a participating lender or an authorised mortgage broker. 

To be eligible to apply, you must:

• Apply as an individual or as two  joint applicants.  

• Be an Australian citizen(s) or permanent resident(s) at the time you enter the loan.

• Be at least 18 years of age.

• Have a taxable income up to $125,000 for individuals or $200,000 for joint applicants.

• Intend to be owner-occupiers of the purchased property. 

• Be a first home buyers or have not  owned a property in Australia in the past ten years.

Additional Resources

Find out if you’re eligible for the First Home Guarantee/First Home Loan Deposit Scheme 2024.

Learn more about the First Home Owner Grant.

Search for the First Home Guarantee/First Home Loan Deposit Scheme 2024 price cap that applies your postcode. 

Sources

First Home Guarantee, Housing Australia

First Home Owner Grant, firsthome.gov.au

Help to Buy to deliver more support for Australian homebuyers, Ministers Treasury portfolio

Albanese signals Labor won’t negotiate with Greens on housing help-to-buy legislation, The Guardian

Property Price Caps, Housing Australia

Anthony Stevenson, is the head of home loans at Compare Club. With over a decade of experience under his belt, Anthony is dedicated to helping individuals make informed decisions when choosing a home loan. Whether it's finding a great deal on your home loan or refinancing, Anthony has a wealth of knowledge in the space.

Meet our home loans expert, Anthony Stevenson

Anthony's top home loans tips

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  Home loan pre-approval is not compulsory. It’s possible to begin your home loan application after you’ve found the home you want to buy.