Home Loan Tips

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November 22, 2024

What Is The First Home Buyer Process In Australia?

Tony Xia

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From saving for the initial deposit to understanding different mortgage options and government tax exemptions, there’s a lot to think about when buying your first home. The path to owning might seem out of reach, but you can make the right decisions with the right guidance.

Australia has several financial and legal requirements for first-home buyers, which can be navigated only if you thoroughly know the buying process. Securing a loan, understanding legal requirements and applying for grants and concessions can be daunting without expert assistance.

With years of experience as a mortgage specialist in Australia, I’ve encountered various challenges that first-home buyers face when trying to purchase their dream homes. I’m here to guide you through the step-by-step home-buying process.

How Much Should First Home Buyers Budget?

It is essential to know how much you can easily put into buying your first home because that is the first step in the process. First, decide on a price range for your potential home. You can determine that by exploring the areas where you want to buy a house and the preferred size of your first home.

Once you know your budget and the price range of the kind of houses you are interested in, you will have a clearer idea of how much loan you will need to take. If you are confused about the budget, you can hire one of the several home loan calculators and tools that will help you calculate loan repayment rates.

However, know that those numbers might change. For example, if you were to buy a house for $500,000 a few years ago, you would have been paying around $500 per week for a 30-year loan period at a 3% interest rate.

Today, though, the average interest rates have doubled (7.48% in September 2024), and the loan repayments have also increased substantially.

Consolidating Debts

First home buyers in Australia should also have a list of their debts because only then will they know how to manage them properly. Instead of paying off your personal, store cards, and credit card loans separately, you can combine your debts into a single loan through your bank. This is called debt consolidation.

Debt consolidation often comes with lower interest rates and is easier to manage because you don’t have to keep track of all your loans separately. Following are some of the ways first-home buyers can benefit from debt consolidation:

Finances are easier to manage and track.
The interest rate is lower, resulting in less amount in monthly payments.
You don’t have to remember individual dates and interest rates.
You will have extra money to save for your first home deposit.

Home Loan Application: Reasons For Rejection

Undisclosed debts are one of the biggest reasons most mortgage applications are rejected. When applying for a home loan, lenders consider several factors before approving the loan. These include:

Higher Education Contribution Scheme (HECS).
BNPL debts such as Afterpay or Zip.

These debts can affect the outcome of your home loan application and may decrease your chances of getting a mortgage because lenders consider them liabilities.

Also, if you are inconsistent in paying your other debts, it can negatively impact your credit score because home loan lenders do go through a first-home buyer’s repayment patterns. This is because the repayment behaviour shows your ability to service your debt for your first home.

Minimum Deposit Required For Buying A House In Australia

Normally, first-home buyers need to deposit 20% of the property value as an initial deposit. However, you might have to pay as little as 5% if you have a good credit rating. In that case, the lender will likely ask you to pay Lender’s Mortgage Insurance (LMI).

This gives lenders financial protection in cases when loan borrowers make a deposit smaller than 20% of the property value. If the lender has LMI, it will be safe even if the borrower is unable to pay the loan at some point during the repayment plan.

Hiring A Mortgage Broker For Home Loan

A mortgage buyer helps people get a loan from the bank. Having a mortgage broker with you can make your first home buyer loan process easy because they have expertise in finding the best deals that suit your personal and financial situation.

When you go directly to a bank, you will likely get fewer loan options than when a mortgage broker accompanies you. This becomes even more important if you don’t know which bank you want to get the home loan from. Mortgage brokers help first-time home buyers understand different crucial aspects of the mortgage industry that will help them in the long run.

Now, you might be wondering when the right time to get the services of a mortgage broker is. While it varies from situation to situation, in normal circumstances, you should contact and choose a mortgage broker at least six months before buying your home. However, you can connect with a mortgage broker at other steps, too, during your home-buying process.

First Home Loan Options

There are several different options available in the market for home loans, including split home loans. You’ll need to understand each type to make an informed decision about financing your dream house.

Here are the major loan and repayment types for buying your first home.

Fixed Home Loan

In a fixed-rate home loan, you need to pay a specific amount of interest on your loan for a certain period. This is normally up to five years, but you can get a different fixed loan option from your lender.

Variable Home Loan

Unlike the fixed home loan, the interest rate fluctuates throughout the repayment phase. In variable home loans, interest rates are set above a particular benchmark and fluctuate with the change in market interest rates.

Both fixed and variable home loans come with their own advantages and disadvantages. As such, you should choose the option you think will suit you better in the long run.

There is also a third home loan option that is a blend of fixed and variable loans. This essentially means you will have two different home loans to deal with if you want to service one part of your loan at a fixed interest rate and another at variable interest.

Loan Repayment Options

Just as there are different types of taking a home loan, you have other ways to repay that loan, too.

Principal And Interest

In this repayment option, home buyers pay off the interest on their loan and a portion of the original loan amount. This means that with every payment to your lender, you will reduce the amount you owe them. This repayment method helps reduce the loan quicker and is suitable for first-home buyers.

Interest Only

The borrower only pays the interest on their original loan amount in this loan repayment option. This keeps the principal amount constant throughout your loan repayment. Usually, real estate investors opt for this repayment option because it minimises the amount they need to pay the lender.

Researching For Suitable Grants

Looking around for a suitable grant is one of the most important steps in buying your first home. You should do detailed research to understand which grants are for first-home buyers like you and how you can benefit from them. But let’s first understand what the first home buyer grant means!

First Home Buyer Grant

The government provides financial assistance to first-time homebuyers through the first-home buyer grant. This grant is given to both individuals and couples and is intended to encourage home ownership in Australia and ease the financial burden on first-home buyers.

Different Australian states and territories have other criteria to qualify for the first home buyer grant. Although you should do your own research according to the area where you want to buy a home, here is a general overview of how this grant works!

Eligibility Criteria

Certain eligibility criteria exist for a first-home buyer’s grant in Australia. Some of these include the following:

You need to be a resident of Australia.
You need to be at least 18 years old.
You should never have previously owned property, including investment properties, in Australia.

Application Submission

If you meet all the eligibility criteria for the first home buyer grant, the next step is to submit your application. The application needs to be submitted to the relevant grant issuing authority, which may be based in your territory or state. In a first-home buyers grant, the applicants should submit all the necessary documents to prove they are eligible for the grant.

Grant Amount

The number of first-home buyer grants varies from location to program and program to program. However, the grant usually comes as a single payment that can either be a fixed amount or a certain percentage of the property’s value. The grant amount might also change depending on if you are buying a newly built home or an already established one.

Specific Requirements

Some first-home buyer grants need applicants to fulfil certain specific requirements as well. These requirements may be related to the type of property, the value of the property you want to buy, the property’s current status, and the purpose for which you will be using the property. Be ready to answer all such questions to avoid any inconvenience later.

Grant Approval

If your grant application is approved, the government typically gives you the grant money once you complete the purchase of your dream house. You can use the amount for different purposes, like fees, deposits, and other relevant expenses.

Major First Home Buyer Grants in Australia

Several different first-home buyer grants help you become the owner of your dream house in Australia. Following are the major grants you should know about if you are thinking about buying your first home:

First Home Super Saver (FHSS) Scheme

Introduced in 2017, the First Home Super Saver Scheme aimed to increase housing affordability in Australia. This scheme establishes a super fund for first-time home buyers so you can save your money and save faster for your dream house.

The FHSS scheme also has tax concessions, but the annual contribution limit is $15,000, and you can keep a maximum of $50,000 in your super fund.

You should be over 18 years old and the first home buyer eligible for the FHSS Scheme. ATO, or the Australian Taxation Office, is the competent authority that determines the maximum amount you can get under this scheme as a first home buyer.

Once the ATO completes the determination, you can request the specified amount. Remember that the funds under the FHSS Scheme need to be used for home purchase or construction within 12 months of release.

First Home Owners Grant (FHOG)

The FHOG was introduced by the Australian government in 2000. Its main purpose was to alleviate the effect of General Sales Tax on home ownership in the country. Each Australian territory and state independently funds and administers the First Home Owners Grant under its own laws.

One of the advantages of the FHOG is that you can use this national scheme as a deposit for your dream home, too. However, you also need to remember that despite being a great financial resource for first-home buyers, this grant can only be used as part of the deposit.

This means that first-time home buyers typically need to pay 5% to 10% of the property’s value from their own pocket. Similarly, if you are constructing a new home, you will get the FHOG only after the construction starts. Therefore, it is recommended that you shouldn’t depend solely on this grant and have other funding sources at your disposal, too.

QLD First Home Buyers Stamp Duty

If you are a first home buyer in Queensland, you can also benefit from the state’s first home buyers stamp duty. This scheme was introduced to help first-home buyers get their dream house. If the property you are interested in is valued under $500,000, you won’t have to pay any stamp duty, which will help you save quite a lot of money.

While you will have to pay stamp duty on properties valued above $550,000, you might still get a partial concession if your property value lies between $550,000 and $650,000.

It is also important to know that this scheme only applies if the property you buy will be your principal residence. You will not be eligible for the QLD First Home Buyers Stamp Duty if you buy an investment property. The good thing about this scheme is that you can combine it with the FHSS and FHOG grants to reduce your dream house’s cost further.

House Hunting

The best strategy is to get your first home buyer loan pre-approved before you start looking for your first home. This is because, in the case of pre-approved finance, you will know exactly how much you can offer to the seller if you like a house. Pre-approval is a letter from the bank or any other lender that tells the seller how much you will most likely be getting from the lender for your house.

The pre-approval, also called conditional approval, shows the seller that you are not playing around and are serious about buying their property because you can afford it. Once you get the pre-approval, it’s time to search for your dream home. For this, talking to real estate agents is a good option. You can even visit open homes and ask for reports of properties you are interested in.

Property reports indicate the average price of the houses and units in that area. Keep in mind that the seller employs real estate agents. You should negotiate with the agent without disclosing your financial position. You’ll also need to keep your legal team in the loop during the negotiations.

Another important aspect of house hunting is to keep your emotions aside while searching for your first home. Property-related decisions are important and shouldn’t be based solely on feelings. You should carefully consider all the factors before making the final decision; otherwise, it might lead to regret later.

Finding A Conveyancer

First-home buyers in Australia should also hire a conveyancer to transfer the property smoothly. A conveyancer helps legally transfer a property from seller to buyer. Although a conveyancer is not legally needed while selling or buying a property, the process becomes easier if you hire one.

In Australia, first homeowners often don’t know the legalities of property purchasing. This is where a conveyancer comes in handy. They help you understand the contract so you understand every point and ensure everything is in your favour before signing the agreement.

Conveyancers also save you time by doing relevant searches for you if you want to buy another property later in life. When you hire an experienced conveyancer, you will avoid doing lengthy paperwork as they will take care of everything. They will coordinate with building inspectors, agents, and vendors to ensure everything is on track.

Typically, a conveyancer costs anywhere between $500 and $1600. Still, you should always ask them if their fee is fixed or variable because they may charge extra for preparing documents, sending or receiving correspondence, or the number of hours spent working on your behalf. Asking your conveyancer about hidden charges will give you an idea of how much their services will cost.

Making An Offer To The Seller

Once you find and finalise your dream house, it’s time to make an offer to the seller. Always remember that you don’t necessarily have to pay the property’s listed price. Sellers often ask for a higher price than the property’s actual value.

If first-home buyers have done their due research before going into the market looking for a home, they would know exactly how much to settle for. When making your offer, you should submit it properly, in writing, rather than verbally conveying it to the seller. A formally written offer should include the following:

The full legal name of the buyer.
The offered price.
The deposit you are going to make.
Terms related to building, pest, and finance.
Dates of settlement.
Details of your lawyer.

Finalising The Agreement

The last step for first home buyers, before they become their house owners, is to finalise the settlement. The Contract of Sale is the document that legally transfers the ownership to you. Generally, a contract of sale has the following information included in it:

Seller’s name.
Buyer’s information.
Property address.
Offer date.
Settlement date.
Property’s price.

Summing Up

First-home buyers often face the complexities of buying their dream house. Getting a first-home buyer loan and having your finances pre-approved is essential to buying a home in Australia.

Need further advice and assistance? We can help. With decades of experience in real estate, we have helped hundreds of first-time home buyers get the home of their dreams. Contact us today to learn more about how we support first-time home buyers like you.

Frequently Asked Questions

How Much Of A Deposit Is Needed For A First-Time Home Buyer?

The initial deposit required is 5% of the total purchase price of the residential property. However, financial institutions or approved agents may ask for more based on individual circumstances and buying assistance options available for an eligible home buyer.

Do First-Home Buyers Pay Stamp Duty?

If you’re a first-time home buyer to buy in Australia, you may be eligible for duty exemption or relief on transfer duty. While the criteria are similar to the eligibility for the homeowner grant, separate applications like the FHOG application are required at the revenue office.

Do First-Home Buyers Pay LMI?

Australia’s First Home Grant incentive allows citizens or permanent residents to purchase their homes by paying LMI, which protects lenders if the borrower defaults. This is part of the home guarantee scheme.

Can First-Home Buyers Access Super?

Yes. You’ll need to apply to the Australian Taxation Office (ATO) under the First Home Super Saver Scheme to determine how much you can receive, factoring in duties levies and tax duties.

What Is the Homebuilder Grant?

The homebuilder grant is a financial assistance scheme for individuals entering into a building or comprehensive contract to buy or construct a new principal place of residence.

Can You Refinance A First-Time Home Buyer Loan?

Since there is no refinancing minimum period in Australia, doing so is possible after the settlement date, provided the proof of identity and supporting documents meet the residency requirement for Australian citizens or permanent residents.

What Are No-Deposit Home Loans?

A home loan allows buyers to purchase a property type without any upfront deposits, typically requiring a guarantor or other form of security. This can be part of a shared equity or homebuyer fund program.

What Taxes Apply To Vacant Land?

Vacant residential land tax applies to unoccupied residential land. This is in addition to other taxes, such as land tax, which may vary based on local regulations.

How Can Buyers Ensure Compliance With Local Regulations?

Buyers should use the tools and resources provided by the local revenue office and get advice from approved agents to ensure compliance with local regulations.

About Tony Xia

Having worked in the customer service and finance industry since 2011, our Director Tony Xia and his team’s highest priority is to cultivate a long-lasting relationship with clients based on trust and respect at The Mortgage Agency.