How to secure a home loan as a first home buyer

Buying your first home doesn’t have to be intimidating. Yes, there are several steps involved and plenty of decisions to make, but with the right guidance it can be a rewarding experience. It all comes down to being prepared, so you know what to expect. 

Before you start searching for the perfect place to live, it’s a good idea to take some time to understand your opportunities and potential limitations as a first home buyer. You don’t have to do this alone – your Mortgage Choice broker will be there to guide you every step of the way.

Determine how much you can borrow

Having a rough idea of how much you can borrow is an important place to start because it will help you refine your property search.

While the maximum amount you can borrow will vary between lenders, the key factors that lenders look at are your income and current financial commitments. As a general guide, your mortgage repayments shouldn’t exceed 30% of your gross (pre-tax) income.

To find out how much you might be able to borrow for a home loan, check out our borrowing power calculator. It will give you an initial estimate of what a lender may be willing to lend to you and how much your repayments may be each month. Make sure you enter realistic figures to get an accurate picture of what you can comfortably afford to borrow. Otherwise, you may end up overstretched and struggling to meet your repayments.

Our calculator is a handy step to take before you contact your mortgage broker so you can see the effect different interest rates and loan periods will have on the amount of money you can borrow, the total interest you pay and your estimated monthly repayments. Please keep in mind that the results from this calculator are an approximate guide only and do not constitute specialist advice.

What is Lender’s Mortgage Insurance?

If you need to borrow more than 80% of a property’s purchase price, your lender may add Lender’s Mortgage Insurance (LMI) to the amount you’re borrowing. This is a one-off, non-refundable insurance premium that’s added to your loan. While the exact amount of LMI is different for every loan, it will usually be thousands of dollars.

Borrowers are generally exempt from paying LMI if they have a deposit of more than 20%, have a guarantor for their loan or meet an LMI exemption.

Government incentives for first home buyers

In Australia, there are some government incentives available to help first home buyers. Most of these incentives are run by the state governments, so your eligibility and the amount you may receive will depend on where you live and where you want to buy.

Your Mortgage Choice broker can help you work out if you’re eligible for any of these incentives:

First Home Owner Grant

This is a one-off, tax-free payment to people buying their first home in Australia. It’s only available for new dwellings that no one has lived in before. It’s paid on the settlement of your property or on the first progress payment if you’re building a property. The amount varies between states and territories.

First Home Guarantee

Part of the government’s Home Guarantee Scheme, the First Home Guarantee allows you to buy a home with a deposit as low as 5% without having to pay Lender’s Mortgage Insurance. To be eligible, you must earn less than $125,000 per year if you’re an individual, or less than $200,000 for couples. There’s a limit to how many people can participate in the scheme each financial year and maximum purchase prices are applicable and can vary per state.

First Home Super Saver Scheme

The First Home Super Saver Scheme allows you to save your home deposit inside your super fund so you can take advantage of the concessional tax treatment of super. You can then apply to release your voluntary super contributions (up to a total of $50,000), along with associated earnings, to help you purchase your first home.

Stamp duty waiver/discount

Stamp duty is a state government tax paid for transferring the title of a property, calculated on the purchase price. As a first home buyer, you may be eligible for a significant rebate on stamp duty if the price of the property you’re purchasing is under the threshold. Or, depending on where you live, you may be exempt from paying it entirely. Each state and territory has its own rules and they change them frequently.

How your broker can help

When you’re a first home buyer, it’s extremely helpful to have someone in your corner who can explain the steps and help you make informed decisions. Mortgage brokers do all the research and negotiations behind the scenes to help you secure a great loan and make sure your settlement goes through without a hitch.

Here are some of the things we can help you with:

• We’ll work with you to evaluate your home loan needs and give you a realistic idea of how much you can afford to borrow.
• We’ll assess if you’re eligible for government assistance schemes, such as the First Home Owner Grant, and will help with the paperwork.
• We’ll explain all the costs and steps involved in buying a home so there are no surprises.
• If you haven’t yet found the right home, we can help to organise pre-approval so you can search for your new home with confidence, knowing exactly what you can afford.
• We’ll compare hundreds of home loan products from our panel of more than 35 lenders and provide expert advice to help you chose the home loan that’s right for you.
• When you’re ready to move ahead with your home loan, we’ll prepare all the paperwork and support you at every step to settlement.
• Our relationship doesn’t end after you move into your new home. We’ll keep in contact with you and will regularly check in to make sure your loan is still working for you.