First Mortgage
If you’re a first-time buyer and want to find out what your mortgage options are, read all about them here with Savvy.
Fact checked
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.
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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.
Research and compare loans
There are several areas in which you can compare different home loan offers, which you can do right here with Savvy. We break down loans so you can look at factors such as interest rate, fees, comparison rate, loan terms, LVR requirements and further additional features you may desire on your loan.
This enables you to make a more informed decision on which loan is best for you based on a greater number of factors.
Prepare your documentation
While documents may differ between lenders, you’ll always need to supply the following:
- Proof of your identity: this may include your passport, drivers’ licence, birth certificate or marriage certificate
- Proof of your income: three months’ worth of payslips or bank statements showing your wages being deposited
- Details of your expenses: a detailed list of your average monthly expenses including the rent you pay, utility bills and phone plan
- A list of your assets: the things you own, which may include your car and any cash savings you have
- What you owe: your liabilities, which will include all credit cards and any other debts you may have
Choose your lender and apply for pre-approval
You can now choose your preferred lender and a loan which best meets your needs, comfortable in the knowledge that you know what sort of loan you want and that you’re comparing a range of the best lenders and deals across the country with Savvy. You’ll have a fairly simple form to fill out and, once you’ve completed it, you can send it and your documents through for pre-approval.
You can receive pre-approval on the same day you apply, after which it remains valid for three months.
Select your home and apply for full approval
Once you’ve successfully applied for pre-approval, you’ll be able to start looking for your dream home within a price range you know you’re able to afford. Once you’ve found it, and signed a sale contract subject to finance, contact your lender again and ask for full approval for your loan. Expect to wait at least one to two weeks for full approval to be granted, and expect your lender to get back to you with further queries or requests for documentation.
Once you have gained full approval, your property settlement can go ahead and the ownership of the property is transferred to you.
Top tips for increasing your chances of first mortgage approval
Get your finances in order before you apply
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.
Don’t change jobs too often
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.
Save as much as you can for your deposit
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.
Consider applying with a guarantor
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.
