Home Buying

Guide to buying your first home: Home loans, grants and budgeting advice

Nathan Gooley
Dec 20, 2020
Yard Financial Pty Ltd | ACN 623 357 513 | Australian Credit Licence 509481

Table of Contents

First home buyer and feeling a little overwhelmed by it all?

We get it - there is a lot to take in, but we are here to help you make the leap into home ownership.  

The key is to research, plan and educate yourself so you know what to expect - like:

  • What you can afford
  • How much you can borrow
  • What government concessions or grants are available
  • The true cost of buying your first home
  • How the home buying process works

Our guide has all the must-know information to help you understand all this and more. 

Let’s kick this off by defining what it means to be a first time home buyer. 

What is a first time buyer?

To qualify as a first home buyer - in the eyes of home loan providers and for government grants - you must be buying a property for the first time. This also applies to your spouse or partner. 

You also need to tick a few more boxes to be eligible, like being an Australian citizen or a permanent resident and be at least 18 years old. After you have bought a home you also need to live in it for at least six continuous months to qualify for the First Home Buyer’s Grant (FHOG).

Tip: Your home loan provider can help you clarify exactly what government assistance you qualify for, and even help you apply.

Home Loans

First home buyers loans: financing your dream home

Most people need a home loan or mortgage to finance the purchase of a property. 

You apply for this from a bank or dedicated home loan provider like Yard, and repay the amount they loan you over a set number of years. This is called the term of a loan which typically runs over two - 30 years. You are charged interest over the term of the loan - for example a rate of 2.39%, which is how the lender makes their profit. 

If you are going to be living in your property then you are likely to be offered an owner occupier loan for first home buyers. This will generally have a lower interest rate than a rate offered to investors - which means you will pay less interest over the life of the loan. 

Types of home loans

Let’s start by looking at the different types of home loans on the market.

Variable interest rate loan

The interest rate on your loan can go up or down, in line with market interest rates. This type of loan often has features like extra repayments, a redraw facility or an offset account - which makes them a popular choice. An offset account allows you to put your savings against the loan amount, which reduces the overall interest you pay. 

Fixed interest rate loan

A fixed rate loan is when the interest rate on your loan is locked in for a set period - normally 1, 2, 3 or 5 years. Fixed rate loans usually have limited extra repayments allowed and do not come with an offset feature. 

Split loan

A split loan is a combination of a variable and fixed - so you have the best of both worlds. This could be useful as you can make extra repayments on the variable portion, or offset to repay your loan faster - while you get some rate certainty on the fixed portion. Yard offers loans with up to 5 splits.

You also have the option of choosing how you repay your loan. There are two types of home loan repayments:

  • Principal and interest - Principal and interest is when part of your monthly repayments pay down a portion of the loan amount (called the principal) and the interest charges on the loan 
  • Interest only - Interest only loans - where your weekly/fortnightly/monthly repayments only pay off the interest on the loan - not the loan and principal. This type of loan usually has a time limit after which it reverts to principal and interest

Tip: You will generally pay off your loan quicker with principal and interest repayments, though you need to be sure this suits your financial circumstances. 

Qualifying for your first home loan: Calculating your serviceability

Home loan providers take a number of factors into account when you apply. 

They need to work out if you can afford to pay - or service, your home loan repayments. Your serviceability is calculated by subtracting all your monthly expenses/outgoings/debts from your monthly income, and adding a monthly mortgage payment in. 

To qualify for a home loan you will also need to provide proof confirming your income, identity and what assets you own. This includes current payslips, account statements and details of any other loans, debts and credit cards you may have. 

You can use our online calculator to work out how much you could borrow. 

This will give you an estimate of what type of property you can afford, how much your monthly repayments will be, and the term - or length - of the loan based on the interest rate. Here is when you should also do the maths and work out the impact of interest rates rising or you losing an income on your ability to make repayments.

Tip: If you have a HECS-HELP debt it doesn’t mean you can’t qualify for a home loan, but it impacts your borrowing power as it is counted as a monthly recurring expense 

Applying for your first home loan: Our 3 step process

Wondering how to apply for your first home loan

We have a simple, three step online application you can complete anytime, from any device.

  • Step 1 - Tell us about yourself: Securely share your personal financial details. We verify your identity, credit history and financials online
  • Step 2 - Design your loan: Design the features of your loan to match what works best for you
  • Step 3 - Get approved! When all of your details check out, we provide you with the decision on your loan!

We then settle your loan and take care of the rest so you secure your dream home asap!

Grants and Concessions 

There are various government grants, schemes and concessions that are designed to help you buy your first home. These vary by State/Territory, and the terms change periodically - but you should take advantage of what is on offer where you live.  

First Home Owner Grant: help buying your first home

Did you know the government helps you buy your first home?

The First Home Owner Grant - or FHOG - is a lump sum payment that is managed at the State and Territory level. The amount varies depending where you live, so you need to check with your home loan provider on the exact terms and if you qualify. 

Example: In NSW the FHOG is $10,000 for first home buyers who build a new home valued at a total cost of $750,000 or buy a new home valued up to $600,000. In Victoria the FHOG is $10,000 for new homes under $750,000, and this doubles if you are buying a new regional property for less than $750,000. If you live in Queensland then you get a $15,000 FHOG for new properties valued under $750,000. 

First home buyer stamp duty: discounts and concessions

Stamp duty is a government tax that applies to the purchase of a property which you, the buyer, pays. It is based on the purchase price of a property.

Depending on where you live, you could:

  • Pay no stamp duty (property falls under a defined value) 
  • Pay some duty (reduced stamp duty)
  • Pay full stamp duty (your property is too expensive to qualify)

Example: In NSW there is currently no stamp duty on property under $650,000 for first home buyers, while there is discounted stamp duty on properties between $650,000 - $800,000. In Victoria the stamp duty threshold - where you pay $0 - is under $600,000, with discounts on property valued between $600,000 - $750,000. In Queensland you won’t pay stamp duty on a property under $500,000. 

Costs, Saving and Budgeting

Saving for your first home: set some savings goals 

Saving for your first home can be intimidating, but if you are organised and disciplined you can fast-track your savings goals. 

Some good savings habits to develop include: 

  • Tracking all of your spending 
  • Setting up a dedicated high-interest savings account
  • Making automated monthly or weekly payments into this account
  • Paying off all your credit cards and outstanding loans 

Tip: Ideally you should try to save a 20% home loan deposit as you will avoid having to pay Lender’s Mortgage Insurance (LMI). LMI protects your lender in case you can no longer make the repayments on your loan. If you have a smaller deposit then you need to budget for this extra monthly cost.

Buying your first home: Understand the true cost 

There is more to buying a property than the initial deposit and purchase cost - so it’s important you understand the true cost. 

Look to factor the following into your budget: 

  • Stamp duty 
  • Mortgage registration fee
  • Title transfer fee
  • Loan application fee, mortgage fee and valuation charges
  • Lenders mortgage insurance (LMI) - if you don’t have a 20% deposit
  • Conveyancer or solicitor fees
  • Building and pest inspection cost
  • Strata search fee (if you are buying a unit)
  • Removalist and moving costs

You also need to budget for life after you move in, such as your monthly mortgage repayments, utility bills, council rates, strata fees, home and contents insurance as well as any renovations and/or repairs the property may need. 

Tip: Explore your setup costs using our handy calculator

Purchase Process

Buying your first home: 5 steps to becoming a homeowner

Like anything new the process of buying your first home can be intimidating and confusing. To simplify it for you we have outlined it in 5 steps:

  1. Apply for a home loan

The first step is to apply for a home loan. Based on your financial status your provider will calculate how much you can afford to borrow. The home loan should suit your personal financial circumstances and you should not overextend yourself.

  1. Start the search

Next step is to begin the search for your first home. Try to be realistic about the type of property you want to live in. Knowing how much you can afford to borrow will help you narrow the focus down to a suburb. Then use online listings sites like realestate.com.au to browse properties that fit your criteria. Make a shortlist and start visiting them until you find ‘the’ one. You can also use a buyer’s agent who can streamline this process and save you a lot of running around.

  1. Conduct due diligence on the property

Due diligence checks on a property should be next on your list. This includes verifying the condition of the property, if prior renovations have been approved, and if there are problems in a strata building. Hire a conveyancer and they will take care of all this for you, including arranging critical checks such as building, strata and pest inspections.

  1. Make an offer or attend auctions

If you are buying by private treaty you make an offer to a seller via your conveyancer. There is typically some negotiation involved in this stage, so you need to be patient. If they accept your offer you will have to pay a deposit - often 10 per cent - to secure the property. If you are buying at auction you will need to understand how auctions work, or your buyer’s agent can take care of this for you. 

  1. Exchange contracts and settlement 

If a seller accepts your offer the next step is to exchange contracts of sale. You then go through a settlement period - anywhere from 4 - 6 weeks depending where you live. This brings you to settlement day, where your conveyancer and the sellers legal team meet to exchange all the relevant sale documents. You also pay the balance of the sale price at settlement. This means you can be registered on the title of the new property. 

Your sale is now complete and you get keys to the property. Congratulations - you are officially a first time homeowner!  

Hiring a conveyancer: help with the legal process

When you buy your first home there is a lot of legal paperwork involved. 

All the paperwork is called conveyancing, a process that is handled by legal professionals called conveyancers - and in some cases by solicitors who specialise in property conveyancing. 

You can do your own conveyancing but we highly recommend you hire a professional real estate conveyancer. Besides processing the change of title they also handle a whole range of other tasks including:

  • Overseeing the contract for sale 
  • Reviewing the contract and negotiating any changes
  • Representing you in dealings with the seller’s legal team
  • Liaising with your lender
  • Researching the property and its certificate of title
  • Arranging building, strata and pest inspections
  • Overseeing the settlement process and ensuring all documents are in order

Conveyancers need to be licensed in all states, with the exception of the Australian Capital Territory (ACT) and Queensland, where all conveyancing is done by registered solicitors. Finding a licensed conveyancer is as easy as getting a referral from a friend, your real estate agent, or via the Australian Institute of Conveyancers

Armed with this knowledge you should now be in a better position to find and purchase your first home. You can also use the resources on our site to work out how much you can borrow, as well as your setup costs.

Have any questions about buying your first home? We’re here to help, and our local team are available to chat at a time that suits your schedule.

Want to learn more?