First Home Buyers Background

Home Loans for First Home Buyers

Looking to buy your first home? Use Canstar’s comparison tool and expert ratings to compare first home buyer loan rates and features.

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$2,107.44 Glossary
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$2,130.04 Glossary
Suncorp Bank | Back To Basics | Special | Owner Occupied | LVR 70-80% | Variable
via a Canstar Certified Mortgage Broker
Suncorp Bank logo
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$2,141.37 Glossary
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$2,141.37 Glossary
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6.35% Glossary
$2,152.74 Glossary
BOQ | Economy Home Loan | Special | Owner Occupied | LVR 70-80% | Variable
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Up to $2,000 when you refinance with a BOQ home loan. 
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via a Canstar Certified Mortgage Broker
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6.38% Glossary
$2,150.46 Glossary
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6.51% Glossary
$2,096.18 Glossary
ANZ | Simplicity Plus | Special | Owner Occupied | LVR 70-80% | Variable
via a Canstar Certified Mortgage Broker
ANZ logo
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6.64% Glossary
6.64% Glossary
$2,244.56 Glossary
Teachers Mutual Bank | Your Way Plus Home Loan | Owner Occupied | LVR 60-80% | Variable
via a Canstar Certified Mortgage Broker
Teachers Mutual Bank logo
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6.39% Glossary
6.69% Glossary
$2,186.98 Glossary
Westpac | Flexi First Option Introductory Home Loan | Owner Occupied | LVR 70-80% | 2 Yr Intro | Variable
via a Canstar Certified Mortgage Broker
Westpac logo
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6.54% Glossary
6.86% Glossary
$2,221.46 Glossary

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What is a first home buyer loan?

A home loan is an amount of money lent by a bank or other financial institution to finance the purchase of a residential property. A first home buyer loan is a loan that is designed for people who are looking to take their first step onto the property ladder.

Home loan lenders will often offer special deals and discounts to attract first home buyers. There are typically a range of deals and offers available, from rebates on the purchase price of the home to reduced or waived ongoing or annual fees.

What is the best first home loan?

When it comes to home loans, the ‘best’ choice for you will come down to your individual circumstances. There are three types of interest rates and two repayment types commonly available on home loans, and you have the ability to weigh up your options and decide which combination of these is best-suited to your needs.

The three main home loan interest rate types are variable rate, fixed rate and split rate, and the two main repayment options are principal and interest and interest-only.

Home loan interest rate types

Variable rate home loans

Variable rate home loans have a variable interest rate attached, meaning the interest you pay can go up or down at any time. The timing, size and direction of these changes will be set by your lender, usually based on a range of economic factors, such as changes made by the Reserve Bank of Australia (RBA) to the official cash rate.

Fixed rate home loans

Fixed rate home loans have the interest rate stay the same throughout an initial part of the loan – usually ranging from one to five years – before reverting to variable. This means your repayments stay the same throughout that initial period, regardless of whether the cash rate or your lender’s variable rates go up or down. You may be able to extend or ‘roll over’ the fixed-rate portion of your loan if your lender agrees to this.

Fixed rate home loans can provide greater certainty than variable ones, but they can also sometimes come with fewer features or less flexibility, according to Moneysmart.

Split rate home loans

Split home loans are a combination of variable rate and fixed rate home loans, and allow you to choose what percentage of your loan has a fixed rate, and what percentage has a variable one.

Home loan repayment types

Principal and interest home loans

A home loan with principal and interest (or P&I) repayments is one where you pay back the money you borrowed from the lender – also referred to as the ‘principal’ of the loan – at the same time as you pay off the interest your lender charges you. This means the amount you repay each week, fortnight or month is likely to remain fairly stable throughout your loan, unless your lender changes your interest rate or ongoing fees.

Interest-only home loans

Interest-only (IO) home loans are loans in which only the interest portion is paid off, not the principal, for the first one to five years of a loan, before the loan reverts to P&I repayments. As a result, your repayments may be cheaper initially but are likely to go up substantially once you start paying off the principal component.

In Australia, this type of loan is more popular among property investors than people buying a home to live in, although it may also be attractive to people who want cheaper initial repayments on their first home.

However, Moneysmart warns that the interest rates for these types of loans are often higher than principal and interest loans, and you will likely end up paying more over the life of the loan because you are not in fact paying off the property itself during the interest-only period.

What documents do you need when applying for a first home loan?

When you apply for a home loan, lenders will typically ask to see key documents to prove your identity. They will also want to get a picture of your financial situation when deciding how much money they are willing to lend you, and for this reason, they will typically ask to see documents such as pay-as-you-go (PAYG) payslips and bank statements, to verify your income and savings.

Lenders will also want to know about any liabilities and debts you might have, such as HECS and HELP balances and credit card or buy now pay later debts, and they may even wish to see a list of your monthly expenses to get a picture of your budget and determine the size of loan that you might be able to repay.

How much can you borrow for a first home loan?

When you apply for a home loan, lenders will consider your borrowing power. This describes the amount of money you might be able to borrow, based on factors such as your income and expenses, how much you have saved as a deposit as well as any debts you might have. If you are curious about your borrowing power, Canstar’s calculator might be able to help you.

Explore: Calculate your borrowing power

What is the best amount to save for a first home deposit?

In general terms, 20% of the value of the property you’re buying is preferred for a home loan deposit. About 10% is the minimum amount required for a home loan deposit, depending on your chosen lender, but ideally, it is advisable to have as large a deposit as possible saved before buying a home. This is because the greater your deposit, the less money you will need to borrow, and the less interest you’ll end up paying to your lender. Some lenders may also reserve their sharpest rates for borrowers with a high deposit, or in other words a low loan-to-value ratio (LVR).

If you are borrowing more than 80% of the value of the property, you will typically be required to pay lenders mortgage insurance (LMI). This is not a monthly or annual premium like other types of insurance, but is instead an amount that’s either paid upfront or added to your mortgage for you to repay over time, as a means for your lender to protect themselves in the event of a default.

From time to time, lenders will offer LMI discounts to eligible first home buyers, or even waive LMI entirely. If you are shopping around for a home loan, it could be worth comparing or asking prospective lenders if they have such a deal available.

How can you save money on a first home purchase?

There are a number of ways that first home buyers in Australia can save money on their purchase, in the form of various government grants and concessions. These include state-based stamp duty concessions or exemptions, as well as the First Home Super Saver Scheme (FHSS), the First Home Loan Deposit Scheme (FHLDS) and the Family Home Guarantee.

Stamp duty concessions

Stamp duty is a tax that is payable on the purchase of a property, but a number of state and territory governments offer concessions and exemptions for first home buyers. The exact terms differ on a state-by-state (or territory) basis. You can read Canstar’s guide to first home owner grants and concessions to find out what you may be eligible for.

The First Home Super Saver Scheme

First home buyers may also be eligible for the FHSSS. This is a scheme that allows you to make voluntary (before tax) contributions to your super fund that you can withdraw to use as a house deposit. At present, you can make contributions of up to $15,000 per financial year, subject to your normal super contribution caps.

The First Home Loan Deposit Scheme

This scheme exists to help eligible first home buyers get a foot on the property ladder. The scheme can assist you in buying or building your first home, with a deposit of just 5%, and without having to pay LMI.

In order to be eligible for the scheme, the property purchased must be an eligible residential property, such as an existing house, townhouse or apartment; a house and land package; land and a separate contract to build a home; or an off-the-plan apartment or townhouse.

For more information about the scheme and available places, you can visit the NHFIC website. If you make use of this scheme, you may also be eligible for other offers. For example, you can apply for a position in the FHLDS plus use the FHSS, as well as consider state or territory first home owner grants and stamp duty concessions.

The Family Home Guarantee

This is a scheme that exists to help single parents with dependent children purchase a new or existing home with a deposit as low as 2%. The government will guarantee the remaining 18% of the deposit. This can be useful for single parents who would otherwise need to save up a full 20% deposit or pay LMI, which could cost thousands of dollars.

The Family Home Guarantee is limited to 10,000 places. However, these places will be spread out over four financial years from 1 July, 2021, equating to 2,500 spots in the scheme per year.

Bear in mind that while obtaining a place in the FHLDS or Family Home Guarantee could save you money on LMI premiums, buying a house with a 2% or 5% deposit still means you are likely to pay more in interest over the life of your home loan than if you were able to save up a 20% deposit on the same property or a cheaper one.

What is the best way to get a first home loan?

In general terms, the process of purchasing a first home, including applying for finance, can be broken down into a number of steps. These are:

  1. Save for a deposit, keeping in mind the fact that with a 20% deposit or more, you will not need to pay LMI.
  2. Research the available government concessions like stamp duty discounts and first home buyer schemes to see if you are eligible for any.
  3. Consider your budget and how much you would ideally like to spend on a first home, as well as the type of home you wish to purchase.
  4. Gather the documents you’ll need to apply for a home loan, such as bank and credit card statements and payslips.
  5. Consider applying to a home loan lender for pre-approval. This is an optional step, and it’s important to note having pre-approval doesn’t guarantee you’ll be officially approved for a home loan, but it can give you an idea of where you stand financially and how much you will be able to borrow for a home.
  6. Start the hunt for a house or apartment that fits your particular needs and budget, and make an offer on it or bid at auction.
  7. Get unconditional approval from your lender to allow you to borrow the funds for the purchase of the property.
  8. Begin repaying your mortgage once your purchase of the property settles.

How can first home buyers compare home loans?

If you’re an aspiring first home buyer in the market to compare home loans, Canstar’s First Home Buyer Award can be a place to start. Every year, our Award is given to the financial institutions on our database found to provide the strongest combination of products and services to first home buyers. You can also compare home loans using the tool on Canstar’s website.

Compare Home Loans

If you would like to know more about applying for a first home loan and are curious about what you might need and how to improve your chances of being approved, you can read Canstar’s guide to some of the key things that home loan lenders look for. You can also read Canstar’s checklist on how to apply for a home loan.

 

Home loan glossary of terms

Please note that these are a general explanation of the meaning of terms used in relation to home loans or mortgages.

The wording of loan terms and conditions may use different phrases or terms, and you should read the terms and conditions of the relevant loan to understand the features and cost of that loan. You cannot rely on these terms to be part of any loan you may take out.

Refer to the lender’s Key Facts Sheet and other applicable product documentation, and see Canstar’s Financial Services and Credit Guide (FSCG).

Refer to the product disclosure statement (PDS) and Canstar’s Financial Services and Credit Guide (FSCG).

  • Annual percentage rate (APR): This is the total charge for the loan including fees and interest expressed as a percentage, which allows you to compare across the market.
  • Comparison rate: An interest rate figure that represents the total annual cost of the loan, including the annual interest rate, monthly repayments, and most ongoing and upfront fees and charges. Under the law and on the Canstar website, all comparison rates for home loans are based on a $150,000 loan over 25 years (read the comparison rate warning). Learn about comparison rates.
  • Credit rating (credit score): An assessment (typically performed by specialised credit bureaus) of the creditworthiness of individual borrowers, based on their borrowing and repayment history (credit report). Lenders consider your credit rating when deciding whether or not to give you a loan, how much to loan you, and what interest rate you will pay. You can check your credit score for free with Canstar.
  • Deposit: In the context of home loans, a deposit is a percentage of the purchase price that you will typically need to save and pay upfront. Find out more about home loan deposits and how they work.
  • Debt-to-income ratio: A comparison that takes in the amount of debt you have relative to your overall income. Lenders may use this calculation as a way to measure your potential eligibility for a loan. Learn about debt-to-income ratio.
  • First Home Loan Deposit Scheme (FHLDS): The First Home Loan Deposit Scheme is a government initiative designed to help Australians buy their first home. The scheme is a government guarantee which will secure the mortgages of some low- and middle-income earners with a deposit of as little as 5% of a property’s value, and help them avoid paying Lenders Mortgage Insurance premiums. Eligible first home buyers could purchase a variety of residential properties under the scheme, including an existing house, townhouse or apartment; a house and land package; land together with a separate contract to build a home; and an off-the-plan apartment or townhouse. However, not all lenders are involved in this scheme.
  • First Home Owner Grant (FHOG): A government grant given to first home buyers. Learn what first home owner grants are available in your state or territory.
  • Fixed rate: A fixed rate home loan allows a borrower to lock in an interest rate for a particular period of time, typically from 1 year up to 5 years. The interest rate that the borrower pays will remain the same for that amount of time, regardless of changes in the RBA cash rate.
  • Guarantor: If someone ‘goes guarantor’ on your loan, it means that they are promising (‘guaranteeing’) that they will be liable for the loan if repayments are not made. The guarantor also means they must be able to demonstrate their own capacity to repay your loan. Learn about guarantors on home loans.
  • Introductory rate or honeymoon rate: An introductory rate offered to entice borrowers with a low advertised rate for the first few months of the loan. After the honeymoon period, the loan reverts to the standard variable rate offered by the lender. Use our Honeymoon Rate Calculator to estimate the cost of the loan over a specific period of time.
  • Lenders mortgage insurance (LMI): Insurance that the loaning institution takes out in case of default from the borrower, which the borrower must pay for. Usually applies to home loans with a higher LVR (more than 80%). Learn about LMI.
  • LVR (loan to value ratio): This is the maximum proportion of the value of your home that can be loaned out to you. For example, a bank may approve your loan for 80% of the property value, in which you must pay the remaining 20% as your deposit. Find out how LVR affects your interest rate and LMI.
  • Negative equity: Negative equity is when the market value of your property is lower than the balance remaining on your home loan. Find out more about negative equity
  • Negative gearing: When the income from an investment property is not enough to pay the interest on the home loan for that property, negative gearing is currently available as a tax deduction against that income. Learn about negative gearing.
  • Offset account: A savings account linked to your loan to offset the interest charged on your loan. The money (or credit) in your account is offset daily against your loan balance, which reduces the daily mortgage interest charges. Learn about offset accounts.
  • Positive gearing: When you borrow money to invest, and the income you earn from an investment is higher than your ongoing expenses, then the investment is positively geared. Learn about positive gearing.
  • Pre-approval: An initial approval process where the bank provides a borrower with an estimate of how much they could borrow, based on information they have provided to the bank. Find out how to get home loan pre-approval.
  • Principal: In the context of a home loan, the principal is the amount of money that you borrow from a lender. It can refer to the initial size of a loan, as well as the amount of money left to pay off on a loan.
  • Redraw: A home loan feature that enables the borrower to withdraw funds they have already paid. Usually this is conditional on a borrower being far enough ahead on loan payments, and based on the loan they have been approved for. A redraw facility is not available on all loans. Learn about the pros and cons of redraw facilities.
  • Settlement date: The date on which transfer of ownership officially takes place – the buyer pays the rest of the purchase price, and the final legal documents are exchanged. It is also usually the date on which the buyer receives the keys and assumes possession.
  • Split loan: A home loan in which a predetermined portion of the loan is locked in at a fixed interest rate and the rest comes with a variable rate of interest. Learn about split loans.
  • Stamp duty: The state or territory government’s tax calculated on the borrower’s loan amount. Calculate your stamp duty with our calculator.
  • Variable rate: A home loan interest rate that fluctuates according to the official cash rate set by the Reserve Bank of Australia. The rate can go up or down over time, varying your repayments.

Below is a list of the winning home loan providers from Canstar’s 2021 First Home Buyer Award:

  • Bank of Melbourne
  • BankSA
  • Great Southern Bank
  • Hume Bank
  • MOVE Bank
  • People’s Choice
  • St.George

Compare Home Loans

Source: Canstar Research, July 2021

Author: Nina Tovey, Canstar Editor-in-Chief 

As Canstar’s Editor-in-Chief, Nina heads up a team of talented journalists who research and write articles to provide our readers with valuable insights about the home loan and property markets. Previously Nina founded her own agency where she provided content and communications support to clients around Australia for eight years. She also spent four years as the PR Manager for American Express Australia, and has worked at a Brisbane communications agency where she supported dozens of clients, including Sunsuper and Suncorp.

Nina has ghostwritten dozens of opinion pieces for publications including The Australian and has been interviewed on finance topics by the Herald Sun and the Sydney Morning Herald. When she’s not dreaming up ways to put a fresh spin on finance, she’s taking her own advice by trying to pay her house off as quickly as possible and raising two money-savvy kids.

Nina has a Bachelor of Journalism and a Bachelor of Arts with a double major in English Literature from the University of Queensland. She’s also an experienced presenter, and has hosted numerous events and YouTube series.

You can follow her on Instagram or Twitter, or Canstar on Facebook.

You can also read more about Canstar’s editorial team and our robust fact-checking process.


Author: Josh Sale, Home Loans Ratings Manager

Joshua Sale, Ratings ManagerAs Canstar’s Ratings Manager, Josh Sale is responsible for the methodology and delivery of Canstar’s Home Loan Star Ratings and Awards. With tertiary qualifications in economics and finance, Josh has worked behind the scenes for the last five years to develop Star Ratings and Awards that help connect consumers with the right home loan for them.

Josh is passionate about helping consumers get hands-on with their home loans, always reminding home buyers that finding the right loan can be as important for your finances as negotiating a fair property purchase price. Josh has been interviewed by media outlets such as the Australian Financial Reviewnews.com.au and Money Magazine, discussing topics including home loan equity and wider finance trends.

When it comes to Josh’s own property journey, the home loans expert once bought two houses in the same transaction when he ensured the cubby house his daughter loved was listed on the purchase contract for his new home. You can follow Josh on LinkedIn, and Canstar on Twitter and Facebook.

First Home Buyer Award Winners

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This content was reviewed by Deputy Editor Sean Callery and Sub-Editor Tom Letts as part of our fact-checking process.

Important information

For those that love the detail

This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you.

Canstar may earn a fee from its Online Partners for referrals from its website tables, and from sponsorship or promotion of certain products. Fees payable by product providers for referrals and sponsorship or promotion may vary between providers, website position, and revenue model. Sponsorship/promotion fees may be higher than referral fees. If a product is sponsored or promoted, it’s an ad and it is clearly marked as such. An ad might appear in different places on our website, such as in comparison tables and articles. Ads may be displayed in a fixed position in a table, regardless of the product's rating, price or other attributes. The location of an ad doesn’t indicate any ranking or rating by Canstar. Payment of fees for ads does not influence our Star Ratings. See How We Get Paid to find out more.

Home loan Star Ratings are updated monthly. The results don’t include every provider in the market and we may not compare all features relevant to you. Current rates and fees are displayed and may be different to what was rated. You can find a description of the initial sort order below the table. You can use the sort buttons at the top of each column to re-order the display. Learn more about our Home Loans Star Rating Methodology. The rating shown is only one factor to take into account when considering products. The table defaults to display only home loans available to somebody borrowing 80% of the total loan amount but you can use the filters to change this. Similar products might have different features and fees depending on the amount you borrow. Contact the lender for details.

The products and Star Ratings in the table might not match your exact inputs in the selector. Sometimes the methodology uses profiles with categories or bands (e.g. income, loan amount or monthly spend), but sometimes a single methodology, without any categories or bands, is applied.  The results will show the products that most closely match your selection, based on our profiles. If you are unsure about any terms used in the comparison table please refer to the glossary.

What is a Target Market Determination?

A Target Market Determination (‘TMD’) is a document that explains which people particular financial products may be suitable for (the target market) and sets out any conditions around how financial products can be distributed to consumers.

Why do product issuers provide Target Market Determinations?

From 5 October 2021, TMDs are compulsory for most financial products.

Issuers and distributors of financial products must take reasonable steps that are likely to result in financial products reaching consumers in the target market defined by the product issuer.

We recommend that you consider the TMD before making a purchase decision. Contact the product issuer directly for a copy of the TMD.

Any advice on this page is general and has not taken into account your objectives, financial situation or needs. Consider whether this general financial advice is right for your personal circumstances. Canstar provides information about credit products. We’re not suggesting or recommending a particular credit product for you. If you decide to apply for a loan, you will deal directly with the provider, not with Canstar. Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. It’s important you check rates and product information directly with the provider. For more information, read our Detailed Disclosure. ^Read the Comparison Rate Warning.

Before you elect to terminate or modify existing lending arrangements, we recommend you consider (i) your personal circumstances, and (ii) any associated fees, exit costs and application costs that may be applicable as well as the impact these changes could have on you. We suggest you consider seeking independent advice from a qualified adviser.

“Interest-only loan” generally means a loan where you will only pay interest during the interest-only term. That means you won’t be making payments which reduce debt during the interest-only term.

On some Home Loan products, you can choose to be referred to a mortgage broker who has been certified by Canstar according to our certification process. Mortgage brokers may not be able to offer loans from every provider. The loans included in the table are loans that Canstar Certified Mortgage Brokers can discuss with you, if you choose to do so. There may be more suitable loans for your personal circumstances.

If a broker successfully completes the Canstar certification process, they may pay Canstar a fee to use the official Canstar Certified Mortgage Broker badge. Canstar may earn a fee from the Canstar Certified Mortgage Broker, or the broker group they are affiliated with, if you settle a Home Loan via a Canstar Certified Mortgage Broker after being referred to the broker by Canstar.  Fees payable may vary depending on the home loan product and product provider.

Not all mortgage brokers available in the market have undertaken the certification process.  Canstar has invited a limited number of brokers to undertake the process, and only those brokers who have successfully completed the certification process are entitled to use the logo and wording “Canstar Certified Mortgage Broker”. Being certified as a Canstar Certified Mortgage Broker is not a representation that the holder’s mortgage broking services are superior to all other brokers who do not hold the certification.

Canstar Certified Mortgage Brokers are independent contractors, operate under their own Australian Credit Licence, or as Credit Representatives under an Australian Credit Licence, and are not Canstar’s agent or representative. They are not Home Loan product providers, but they can make recommendations to you about Home Loan products that may suit your needs. The broker may require you to enter into an agreement with them in relation to the services they can provide.  Canstar will have no knowledge of or input into the advice and product recommendations you receive from a Canstar Certified Mortgage Broker.

If you choose to be referred to a Canstar Certified Mortgage Broker, you will be taken to have accepted Canstar’s Terms of Use.

Your use of the Canstar Group’s Mortgage Broker Referral tool does not mean that you will be eligible to be approved for any particular home loan.