Is a First Home Buyers Loan the
Key to Your Dream Home?
Learn How to Make It Work for You!

Differences Between First Home Buyers Loans and Standard Home Loans

When you’re new to the world of home loans, it can be easy to get overwhelmed by the terminology and the differences between various loan options. Here’s how First Home Buyers Loans stand out:

1. Lower Deposit Requirements

For many first-time buyers, coming up with a deposit is the hardest part. While regular loans often need a 20% deposit, a First Home Buyers Loan may only require 5%, making it much easier to save up.

2. Reduced or No Lenders Mortgage Insurance (LMI)

LMI can be a hefty additional cost, sometimes running into thousands of dollars. Some First Home Buyers Loans allow you to bypass LMI altogether, provided you meet specific criteria, like being eligible for the FHLDS.

3. Access to First Home Owner Grant (FHOG)

The FHOG can provide a substantial financial boost, helping cover costs like the deposit or even new furniture. In Melbourne, the grant is typically $10,000 for new homes but can be higher for homes in regional areas.

4. Stamp Duty Concessions or Exemptions

Stamp duty can really add to your home-buying costs. But in Victoria, if you’re buying a home under $600,000, you can avoid paying stamp duty altogether. For homes up to $750,000, you may still get a discount, which could save you thousands.

Addressing Common Fears and Uncertainties

What if I can’t afford the repayments?

This is one of the biggest concerns for first-time buyers, and it’s completely understandable. The thought of being tied to a mortgage for decades can be daunting. But here’s the thing: you’re not expected to jump into this blindfolded.

Start by using online mortgage calculators to get a realistic idea of what your monthly repayments will look like. Factor in your current rent, other expenses, and any changes that might happen in your life—like a new job or starting a family.

And remember, you don’t have to do this all by yourself. A good mortgage broker or financial advisor can help you see the bigger picture and find a loan that fits your lifestyle, not the other way around.

What if I don’t have enough savings?

Saving up for a home can feel like an uphill battle, especially with so many other financial obligations. But the good news is that many First Home Buyers Loans require as little as 5% of the purchase price.

And don’t forget about government grants that can top up your savings. If you’re feeling stuck, try setting small, achievable savings goals. Even small amounts add up over time, and it’s motivating to see your savings grow, bit by bit.

What if my credit score isn’t great?

A less-than-perfect credit score can seem like a roadblock, but it doesn’t have to be the end of your home-buying journey. Lenders look at your overall financial picture, not just your credit score.

If you’ve had a few bumps along the way, consider talking to a financial advisor about strategies to improve your score. Pay down small debts, avoid applying for new credit, and make sure you’re on top of your bills. It might take a bit of time, but it’s worth it when you’re signing the papers on your new home.

Eligibility Criteria

Understanding if you meet the requirements for a First Home Buyers Loan is the first step. Knowing what’s needed will help you see if you qualify and what you need to do to get ready.

General Requirements

1. First-Time Buyer

You and any co-buyer must not have previously owned a property, either in Australia or overseas. If you’ve ever been listed on a property title, even as a co-owner, you might not qualify.

Feeling a bit unsure about whether you qualify? You’re not alone. Many first-time buyers worry they might not meet the criteria. If you’re uncertain, consider reaching out to us so we can assess your situation and clarify your eligibility.

2. Location

To benefit from state-specific grants like the FHOG or stamp duty concessions, the property must be in Melbourne or the broader Victoria region. Each state has its own set of rules and benefits, so ensure you’re familiar with those applicable to your purchase location.

3. Citizenship

You need to be either an Australian citizen or have permanent residency. If your partner doesn’t meet these requirements, speak to a lender to see how this could affect your application.

Income and Financial Requirements

1. Income Limits

Some financial assistance programs have strict income limits. For instance, the FHLDS is generally available to individuals earning up to $125,000 per year or couples with a combined income of $200,000. If your income exceeds these limits, you may not qualify for specific benefits, though you can still apply for a First Home Buyers Loan.

Are you worried about meeting the income requirements? It’s a good idea to get a clear picture of your earnings, including any bonuses or overtime, and then have a chat with us who can guide you through the options that match your financial situation.

2. Savings/Deposit Requirements

While you might be able to secure a loan with a 5% deposit, demonstrating good savings habits is crucial. Lenders want to see that you’ve been able to save consistently, which shows financial responsibility and stability.

3. Credit Score

A good credit score can improve your chances of approval and help you secure a better interest rate. If your score isn’t great, try improving it by paying off debts, paying bills on time, and not taking on new debt.

Property Requirements

1. Maximum Property Value Limits

Each state has a cap on the maximum value of properties that qualify for first-home buyer incentives. In Victoria, this cap is currently set at $750,000 for the FHOG. Properties above this value won’t be eligible for the grant or stamp duty concessions.

Not sure if the property you’re eyeing fits the bill? It’s always best to check with a real estate agent or your mortgage broker to ensure you don’t miss out on any benefits.

2. Eligible Property Types

The property must be a residential dwelling. This includes new homes, townhouses, or apartments but excludes commercial properties or land without a dwelling. Some lenders may have additional requirements, such as restrictions on the size or type of the property, especially for units or off-the-plan purchases.

Types of Loans Available for First Home Buyers

Choosing the right loan type is crucial for managing your finances effectively. Each loan type offers different advantages and risks, depending on your financial situation and future plans.

Fixed Rate Loans

With a fixed-rate loan, your interest rate stays the same for a set period, usually between 1 and 5 years. This means your repayments won’t change, making it easier to plan your budget. However, if market rates drop, you won’t benefit, and there could be fees if you leave the loan early.

Variable Rate Loans

A variable-rate loan means your interest rate can change with the market. This could lead to lower payments at first, but if rates go up, so will your repayments. It’s a good idea to prepare for these changes ahead of time.

Feeling anxious about rate changes? A variable-rate loan can be a good option if you’re comfortable with some fluctuation in your repayments and if you think rates are likely to stay low in the near future.

Split Loans

A split loan lets you enjoy the stability of a fixed rate and the flexibility of a variable rate. For example, you might fix half of your loan and keep the other half variable. This option provides a good balance, giving you security and the opportunity to benefit if rates drop.

Unsure about committing to a fixed or variable rate? A split loan gives you both stability and can help ease the stress of making a ‘wrong’ choice.

Interest-Only Loans

For a period, you’ll pay only the interest on the loan, not the principal. This can keep your repayments lower initially but won’t reduce your loan balance. These loans can be useful if you’re expecting your income to increase or plan to sell the property in the short term.

For instance, if you’re buying a property as a stepping stone and expect your financial situation to improve in a few years, an interest-only loan might give you some breathing room.

However, be cautious—because you’re not paying down the principal, your loan balance remains the same, and you won’t build equity in your home during the interest-only period.

Feeling unsure about whether an interest-only loan is right for you? It’s important to think long-term. If you’re planning to stay in your home for many years, paying down the principal from the start might be a better option to build equity over time.

Steps to Secure a First Home Buyers Loan

Following a clear, structured plan can simplify the home-buying process and increase your chances of securing the right loan.

Step 1: Assess Your Financial Situation

Start by examining your income, savings, and existing debts. Use an online mortgage calculator to get an idea of how much you can borrow and what your repayments might look like. Aim to have a budget that allows for unexpected expenses, as homeownership can come with surprises.

Step 2: Check Your Eligibility

Verify that you meet the requirements for any grants or concessions. This includes checking your income, the property value, and your first-time buyer status. Checking your credit score now is a good idea because it impacts how much you can borrow and what interest rate you’ll get.

Step 3: Research and Compare Lenders

Different lenders offer various products tailored to first-home buyers. Don’t just look at interest rates; consider fees, loan features, and the lender’s reputation. Use comparison websites and consider consulting a mortgage broker to help you navigate the options.

Step 4: Get Pre-Approval

Getting pre-approved means the lender has agreed, in principle, to lend you a certain amount. This can streamline the buying process and show sellers you’re a serious buyer. Pre-approval typically lasts for 3 to 6 months, giving you time to find the right property.

Step 5: Find Your Property

Research the Melbourne property market to find a home that suits your needs and budget. Attend open houses, inspect different properties, and get a feel for the market. Look beyond the initial asking price to consider potential renovation costs or strata fees.

Step 6: Apply for the Loan

When you’re ready to buy, gather all the necessary documents, such as proof of income, savings history, and identification. Complete the loan application carefully to avoid delays or rejections. If you’re unsure about any part of the process, seek advice from a broker or financial advisor.

Step 7: Finalise the Purchase

After your loan is approved and you’ve found your home, the final steps include signing contracts, completing conveyancing, and undergoing a final property inspection. On settlement day, your lender will transfer the funds, and you’ll officially own your home!

Costs Associated with First Home Buyers Loan

Knowing all the costs upfront will help you budget better and avoid unexpected expenses.

Deposit

While you might secure a loan with a 5% deposit, aim to save as much as possible to reduce your LMI costs and improve your loan terms. Also, if your deposit is less than 20%, you’ll generally need to pay LMI unless you qualify for the FHLDS. LMI protects the lender, not you, so finding ways to reduce or avoid it can save you thousands.

Lenders Mortgage Insurance (LMI)

LMI protects the lender if you can’t repay your loan and is usually required for loans with deposits under 20%. Consider using a guarantor or increasing your deposit to 20% to avoid this cost. Some lenders also offer LMI discounts for professionals in specific industries.

Stamp Duty

Stamp duty depends on how much your home costs and varies by state. In Victoria, first home buyers can receive exemptions or concessions on properties up to $750,000, potentially saving tens of thousands of dollars. Work with your conveyancer to apply for any eligible concessions during the purchase process.

Other Fees

These costs might include things like application fees, valuation fees, and legal fees. Some lenders offer discounts for first-time buyers, so it’s worth asking. Also, remember to include regular expenses like council rates and property upkeep in your budget to make sure you can afford everything comfortably.Read Less