Frequently asked questions for first home buyers

Frequently asked questions for first home buyers
Pre-approval, or conditional approval, is when you approach a lender when looking to buy a home and ask them to pre-approve you to borrow a certain amount.
Find out if you qualify
DO I QUALIFY

Looking to buy your first forever home, but aren’t sure where to start? Some of the lingo can be confusing, so we’ve tried to simplify it here by answering some of the most commonly asked questions by first home buyers.

What is pre-approval?

Pre-approval, or conditional approval, is when you approach a lender when looking to buy a home and ask them to pre-approve you to borrow a certain amount.

For example, the lender might guarantee you for a loan of $500,000, meaning you can borrow up to that amount. This can give you a good indication of whether you’ll be successful in applying for a loan or not, while also narrowing your search for houses in that price range.

You can apply for a full assessment home loan pre-approval with loans.com.au. Note that some lenders don’t accept loan applications for certain properties while you can still be rejected if your financial situation changes.

Your lender will also need information about your borrowing details such as how much you're willing to spend on a property, how much you think you'll need to borrow, the loan purpose (eg. if you’re buying a house or building a house, etc).

It is important to know though that a pre-approval is not a guaranteed loan approval! It is a strong indicator of whether you would get the loan. A guaranteed loan approval requires further detail to be submitted, such as full credit check, etc.

How much deposit do I need?

There’s no definitive number for how much you need to save for a house deposit. It will depend on the value of the property, the repayments you could afford and the lender you apply with. At loans.com.au, we require deposit of at least 10%.

Generally, if you’re buying your own house you will need to deposit at least 20% of the value of the property to avoid paying for Lender’s Mortgage Insurance or LMI. 

 For example, a $600,000 house would have a 20% deposit worth $120,000.

Do I need a building and pest inspection?

Before signing off on a home purchase, you probably will be required to do a building and pest inspection as a condition of the sale. These reports are done through qualified inspectors and can identify major hidden issues you might have missed, like termite damage, water leakages, structural damage, asbestos and other dangers.

If issues are spotted that weren’t in the initial building report, you could save yourself a lot of money in future damages while also getting the vendor (the seller) to pay for it. There will often be an inspection clause in the sale contract, but even if there isn’t it can be worthwhile doing one.

What is the First Homeowners Grant?

The First Home Owner Grant (FHOG) is a scheme introduced back in the year 2000 that provides a cash bonus to first home buyers that differs between the states. This one-off payment can be a few thousand dollars to more than $20,000 (depending on your state), while it also offers major stamp duty discounts - and even waiving stamp duty entirely - for certain properties.

The cash bonus offered by this grant can make a noticeable difference for first home buyers saving for a deposit.

Do I qualify for the First Homeowners Grant?

Not everyone can get the FHOG. There are criteria you have to meet, and these criteria are different for each state and territory. General criteria that don’t change much include:

  • Being 18 years old or over

  • Being an Australian citizen or permanent resident

  • Being an individual rather than a company or a trustee

  • You must be a first-time recipient of the grant

  • You must be a first-time residential property owner.

  • You were also required to move into your new home within a year and live there continuously for at least 6 months.

As well as these requirements, you can only buy properties up to a certain value, while some states will also only accept newly-built properties instead of existing ones, which can make it harder to apply. For example, New South Wales caps the grant at $600,000 for existing homes and new home buildings at $750,000.

What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance (LMI) is insurance taken out on loans by the lender (not for you) that are classified as higher-risk. This is where your deposit comes in; if you have a deposit below 20% of the home’s value, the lender will likely make you pay for LMI.

LMI can be very expensive too. The cost of premiums varies by the loan size and the deposit size, and as the table below shows, it can cost tens of thousands. First-time borrowers often pay a higher LMI premium than existing borrowers too.

Estimated property value

95% LVR LMI cost

90% LVR LMI cost

85% LVR LMI cost

$200,000

$4,727

$3,498

$1,550

$400,000

$11,897

$8,575

$3,777

$600,000

$23,954

$13,284

$6,463

$800,000

$31,939

$17,712

$8,617

Source: Genworth LMI premium estimator.

What is stamp duty?

Stamp duty is another upfront cost you’ll have to pay when buying a property (in most cases). Stamp duty is a tax imposed by all state and territory governments in Australia and is meant to pay for the cost of transferring the title of the property to you.

Stamp duty too can be very expensive, often adding tens of thousands more to the total property cost.

How much stamp duty do I need to pay?

As a general rule, the more expensive the property the more expensive stamp duty will be. Stamp duty differs between states as well: The table below shows how much a $500,000 property will cost in each state and territory for a first home buyer with 0 children and a combined income of $140,000.

As you can see, stamp duty concessions for first home buyers can make buying a home much cheaper, but these breaks only apply in certain situations. Here, it’s likely the FHBs get cheaper stamp duty because the home costs $500,000.

State/Territory

Stamp duty cost (non FHB)

Stamp duty cost (FHB)

ACT

$11,400

$562

NSW

$17,835

$293

VIC

$16,478

$1,370

QLD

$8,750

$1,536

SA

$21,330

$26,201

WA

$17,765

$13,879

TAS

$18,248

$18,598

NT

$5,328

$5,626

You can use loans.com.au’s Stamp Duty Calculator to work out how much you may need to budget for.

Calculate stamp duty

What are the extra costs involved in buying a home?

These two costs above - stamp duty and LMI - are two of the biggest extra costs to consider when buying your first home, as they can add thousands more to the upfront cost. But they aren’t the only ones. There are many different upfront and ongoing fees attached to homeownership, and these can be charged by the lender, by your local council, by the government or individuals like conveyancers:

  • Legal and conveyancing fees

  • Water and council rates.

  • Home and contents insurance

  • Regular maintenance and repairs

  • Mortgage registration fees

  • Application and annual mortgage fees

  • Valuation fees

  • Redraw and offset fees

  • Discharge and break fees

  • And more

So it’s almost always more than just the house cost you’ll need to pay. You might have to budget for around 5-10% extra just to purchase it after factoring in all these.

How to get a good home loan interest rate

What’s equally important as the upfront costs is your monthly home loan repayments. You can’t afford to get stuck with a mortgage you can’t keep up with, which is why a combination of a low interest rate and low fees (as well as good features) is crucial.

loans.com.au has a range of home loans with some of the lowest interest rates on the market, as well as no monthly or annual fees. You can speak to one of our lending specialists today to learn more about applying for a first home buyer loan.

What are the key features of a home loan?

Home loan products have a variety of features. These can vary from lender to lender but the popular features worth knowing about are:

A variable rate 

A variable rate mortgage means that the interest rate can increase or decrease (and hence changing your loan repayments) at the sole discretion of the lender. Because it can vary, this type of interest rate provides a level of repayment uncertainty to a borrower.

A fixed rate 

A fixed rate home loan means your interest rate is locked-in for a period of time, usually 1, 2, 3 or 5 years. This gives you the benefit of predictable loan repayment. The other benefit is that if rates go up above your fixed rate, you are essentially ahead of the market.However if rates go down below your fixed rate, you'll be paying more than the general market. With fixed rate loans, there are also penalties if you want to change before the end of the original loan term.

Offset sub-account

An offset sub-account is a sub-account attached to your home loan where you can put money which reduces the interest payable on your home loan. And if you need to utilise the money, you can “redraw” the funds in the account.

Unlimited extra repayments

 Unlimited extra repayments lets you pay off more than the minimum loan repayment. Making extra repayments will save you money on interest and pay off your home loan faster.

Apply now

Your goal is within reach
with our loan products

Related articles

Buying a home is not an easy task and one of the main obstacles is saving money for a home...

Buying a first home is one of the biggest financial decisions of anyone’s life. Follow the...

Building a new home involves a lot of trust. Trust in yourself to make good decisions and ...