There’s plenty to learn when you’re shopping for your first mortgage; the choices available to you may sometimes appear a little daunting with so many lenders and home loans on the market. It doesn’t need to be a stressful process, though.
Find all the information you need to know before you start your home loan comparison journey here with Savvy. Learn about the different types of loans available so you can find the offer that best suits your needs.
What home loan options are available for my first mortgage?
When it comes to home loans for first-time buyers, most choose principal and interest loans. This is the standard, most popular model for home loans in Australia, as they enable you to chip away at your principal (loan amount) from the outset. While many loans of this type come without any significant bells and whistles, there are now many first homebuyer loan packages offering low interest rates and other benefits bundled together.
You’d typically be required to put down 20% of the value of your property as a deposit; for each $100,000 you want to borrow, you’d be required to have $20,000 as a deposit. However, many lenders now offer high LVR (loan-to-value ratio) loans of 90% to 95%, which is great news for first homebuyers as you may not need to save up as much for your deposit.
If you decide to buy vacant land and build your dream home, you may want to look at a construction loan or a house and land package. These packages offer the option of progressive drawdown, which means the lender releases your agreed loan amount in small chunks as your builder asks for progress payments. Such loans can be interest-only for the portion of time that your home is being constructed, so you only pay interest on the actual amount you’ve paid your builder. After this point, they revert to standard principal and interest loans.
What government assistance is available to first homebuyers?
There are many federal and state grants for first homebuyers which assist people who are buying a home for the first time. The First Home Loan Deposit Scheme is an initiative by the federal government which guarantees up to 15% of a first homebuyer’s deposit, meaning they can supply as little as 5%. In addition, the New Home Guarantee helps first home buyers in the same way, but focuses on new dwellings.
The First Home Owner Grant (FHOG) is a program which provides financial relief to first homebuyers. The amount and eligibility criteria for the FHOG varies from state to state, with different conditions attached to the grant. For instance, in Victoria, the grant is $20,000, but to be eligible you must buy a new regional home. In NSW, the grant is $10,000, but exemptions from the property sale tax known as stamp duty or transfer duty also apply. In SA, the grant is $15,000, but there isn’t any stamp duty relief offered. Check your state government website for specific details of the current grants available, as they do change frequently. The schemes usually contain eligibility criteria including:
- you must be over 18 years of age
- you must be an Australian citizen
- you must be buying your first home in Australia.
What costs should I expect when I buy a house for the first time?
There are several upfront costs you should expect when you buy your first home. The most significant of these will be stamp duty, which varies considerably from state to state. For instance, in South Australia expect to pay $18,830 in stamp duty for a $450,000 property, whereas in QLD your stamp duty would be $0.
In addition to stamp duty, other upfront costs to expect are:
- Transfer fees – these are based on the value of the property you purchase. These vary considerably from state to state, ranging from $137 in the NT to almost $3,000 in SA on a $400,000 property.
- Mortgage registration fees – expect to pay around $100 to $200.
- Conveyancing and legal fees – ranging from around $600 to over $2,000, depending on the complexity of the purchase.
- Mortgage application fees – which vary from lender to lender, usually ranging from $200 to $700.
- Inspection fees – to get an accurate valuation on your property, and also to check for pests and termites. Expect to pay $300 to $600 for an inspection.
- Home and contents insurance – which you will need to organise to take effect from the day you exchange contracts on your new home.
- Utility connection fees – you'll need gas, electricity and telecommunications in your new home, so expect to pay small connection fees to get these services provided.
- Removal van costs – you should factor in the cost of transporting your possessions and furniture into your new home.
Your home loan options
Making your first big step towards buying a home? It's crucial to be across your mortgage options as a first homebuyer.
Opting for a variable interest rate on your home loan means it'll fluctuate as the market moves throughout your repayment term.
On the other hand, fixing your rate locks it in for a pre-defined period. This can bring with it greater certainty around your budget.
It's important not to set and forget when it comes to your home loan. If you find a more competitive offer, it may be worth refinancing.
If you're looking to build a new house, construction loans are specifically designed to cater to the different needs associated with doing so.
A guarantor essentially acts as a safety net for your lender, as they sign onto your loan to agree to pay it off should you become unable to do so.
Purchasing a property as an investment brings with it different specifications from a lender. It's crucial to know what your options are.
Businesses big or small may wish to purchase a property for commercial purposes, which are also different from a standard loan.
Your home loan may give you an interest-only option, which allows you to exclusively pay interest on your loan for a set period.
Just because your finances may be slightly more complicated as a self-employed individual doesn't mean you can't take out a home loan.
Some lenders may allow you to apply for a home loan with alternative documents, such as tax returns, BAS and ABN registration.
Why compare home loans with Savvy?
How does the home loan application process work?
Work out how much deposit you’ll be able to contribute
The more deposit you’re able to contribute, the better. When you’ve worked out how much you have left each week or fortnight from your wages after subtracting your expenses, set aside a specific amount out of each pay to stash away as savings for your home deposit.
The amount of your deposit will determine the amount you’re able to borrow: $75,000 could cover a 20% deposit for $375,000 or a 10% deposit for $750,000, depending on your lender’s LVR requirements.
Top tips for increasing your chances of first mortgage approval
Before you apply for your first mortgage, it’s a great idea to check your credit rating through a credit agency website such as Equifax. Details of all the credit you’ve had in the past are in your credit report, so it’s worth assessing whether you need to retain any unused store credit you may have and reduce the limit on your credit cards. The greater your overall available credit, the smaller the amount you may be eligible to borrow.
Lenders like to see that you have some stability in your life before offering you a home loan. Changing jobs too often may be an indication that you have not yet settled down – and that may count against you in your loan application. Frequent changes of residential address, phone number or email address are also indicators that may count against you, so avoid making any major changes in your life before your first home loan application.
To improve your chances of loan approval, try to save up as large a deposit as you can to reduce the amount you’ll need to borrow. If you’re able to offer more than the standard 20% deposit, you may qualify for lower interest rates with some lenders and pay considerably less interest over the course of your loan.
A guarantor is another person (usually a close family member such as a parent or grandparent) who is in a strong financial position and is prepared to guarantee your mortgage’s repayment. A guarantor will become responsible for your home loan if you default on repayments, but they won’t be involved if you’re able to stay on top of your loan commitments. In some cases, a guarantor can help you in buying a house with no deposit.