Compare First Home Buyer Loan Options

What is a first home buyer home loan?

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 property. A first home buyer loan is a loan that is designed for people who are looking to get their first foot on 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 guarantees of low or no ongoing or annual fees.

What types of loans are available?

When it comes to home loans, there are four types commonly available. These are variable rate home loans, fixed rate home loans, split home loans and interest only home loans.

Variable rate home loans

Variable rate home loans have a variable interest rate attached, meaning the interest you pay can go up or down, depending on the cash rate.

Fixed rate home loans

Fixed rate home loans have the interest rate stay the same throughout the term of the loan. This means your repayments stay the same whether the cash rate goes up or down.

Split 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 is paid back at a fixed rate, and at a variable one.

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 1 to 5 years of a loan. Repayments go up once you start paying off the principal component. This type of loan may bring benefits for property investors.

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 outgoing 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 expenditures, 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.

Calculate your borrowing power

How much do you need for a first home loan deposit?

In general terms, 20% is preferred for a home loan deposit. About 10% is the minimum amount required for a home loan deposit, depending on the lender, but ideally, it is advisable to have as large a deposit as possible saved before buying a home, 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.

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 added to your mortgage that you will repay over time, as a means for your lender to protect themselves in the event of a default.

First home buyers may be able to avoid paying LMI by taking advantage of the First Home Loan Deposit Scheme (FHLDS). You may also be eligible to apply for the Family Home Guarantee.

What is the First Home Loan Deposit Scheme?

The First Home Loan Deposit 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 First Home Super Saver Scheme, as well as consider state or territory first home owner grants and stamp duty concessions.

What other assistance is available for first home buyers?

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.

First home buyers may also be eligible for the First Home Super Saver Scheme (FHSS Scheme). 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.

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 the things that home loan lenders look for. You can also read Canstar’s checklist on how to apply for a home loan.

Author: Nina Tovey

As Canstar’s Editor-in-Chief, Nina heads up a team of talented journalists committed to helping empower consumers to take greater control of their finances. 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.

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Tips for first home buyers

Buying a property – especially the first time around – is a big decision. Thankfully, Canstar has developed some handy checklists to help you through the process of buying your first home:

We also have a whole lot of other tips and guides for home buyers, including the following:

Home Loans 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 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 get your free credit score 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 will 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 expensive 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.

Commonwealth Bank and National Australia Bank started accepting applications under the scheme from 1 January, 2020, while non-major lenders started accepting applications from 1 February.

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.

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 and how to avoid it.

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 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.

First Home Buyer lenders we rate

At the time of writing, Canstar researches and rates the following lenders offering home loans for first home buyers: