First Home Buyer's Complete Guide to Home Loans in Australia
Published by SWIFT ACCOUNTANTS PTY LTD · Last reviewed
Buying your first home is one of the most significant financial decisions you will ever make. Australia has several government schemes to help first home buyers — but navigating deposits, grants, insurance, and loan types can be overwhelming. This guide walks you through every step, from saving a deposit to settlement day.
Step 1: How Much Can You Borrow?
Before you start looking at properties, you need a realistic idea of your borrowing capacity. Lenders assess your gross income, living expenses, existing debts, and ability to repay at higher interest rates (the 3% serviceability buffer).
A rough rule of thumb is that most buyers can borrow 4–6 times their gross annual income, but this varies greatly based on your circumstances, existing debts, and deposit size. Use our borrowing power calculator to get an estimate.
Remember: knowing your maximum borrowing capacity does not mean you should borrow that much. Consider whether you could comfortably service the loan if rates rise by 2%–3%, or if your income temporarily drops.
Step 2: Saving Your Deposit
The deposit is the portion of the purchase price you pay from your own funds. Requirements:
- Minimum deposit: 5% of the purchase price (with LMI or government scheme)
- To avoid LMI: 20% deposit or using a government guarantee scheme
- Genuine savings: Most lenders require at least 5% of the purchase price to have been saved over at least 3 months
The First Home Super Saver (FHSS) scheme allows you to make voluntary super contributions and later withdraw up to $50,000 to use toward a first home deposit, taking advantage of the lower 15% tax rate inside super. This is worth exploring if you have time before purchasing.
Government Assistance for First Home Buyers
First Home Owner Grant (FHOG)
Each state and territory offers a one-off grant for eligible first home buyers. The amount and eligibility requirements vary. Generally, the grant applies only to new builds (not established properties) and requires you to live in the home for a minimum period.
| State | Grant Amount |
|---|---|
| NSW | $10,000 |
| VIC | $10,000 |
| QLD | $30,000 |
| WA | $10,000 |
| SA | $15,000 |
| TAS | $30,000 |
| ACT | $7,000 |
| NT | $10,000 |
Grant amounts and eligibility criteria are subject to change. Always confirm with your state revenue office.
First Home Guarantee (No LMI with 5% Deposit)
The federal First Home Guarantee (FHG) allows eligible buyers to purchase with just 5% deposit without paying Lender's Mortgage Insurance. The government guarantees 15% of the loan amount, so the lender treats it as an 80% LVR loan. Places are allocated per financial year and are limited — check Housing Australia for current availability.
Income caps apply: $125,000 per year for single applicants, $200,000 for joint applicants. Property price caps also apply by location.
Lender's Mortgage Insurance (LMI)
If you borrow more than 80% of the purchase price (LVR above 80%), most lenders require Lender's Mortgage Insurance. LMI protects the lender — not you — if you default on the loan. Despite this, you pay the premium.
LMI costs vary based on loan size and LVR. On a $600,000 loan at 90% LVR ($540,000 loan on a $600,000 property), LMI might cost $12,000–$18,000. This is often added to the loan, meaning you pay interest on it over the loan term as well.
LMI is not all bad — it allows buyers to enter the market sooner with a smaller deposit, which in a rising market can mean the capital gains outweigh the LMI cost. It is a judgment call based on market conditions and your personal circumstances.
Getting Pre-Approval
Pre-approval (also called conditional approval) is a preliminary assessment by a lender that indicates how much they would likely lend you, based on your financial position at the time of application. Pre-approval is strongly recommended before attending auctions or making offers, as it confirms your budget and shows vendors you are a serious buyer.
To apply for pre-approval, you will typically need:
- Proof of income (recent payslips, tax returns)
- Bank statements (3–6 months)
- Identification documents
- Evidence of your deposit (savings statements)
- Details of any existing debts (credit cards, personal loans, HECS)
Pre-approval typically lasts 90 days. After that, you may need to apply again if your financial situation has changed.
Fixed vs Variable Rate: Which Should You Choose?
For first home buyers, this is one of the most common dilemmas. Each option suits different situations:
Variable Rate Pros
- Repayments drop when rates fall
- Usually supports offset accounts
- Unlimited extra repayments
- No break costs to exit or refinance
Fixed Rate Pros
- Repayment certainty for 1–5 years
- Easier to budget household expenses
- Protected if rates rise sharply
- Good for tight financial situations
Many first home buyers choose a split loan — fixing a portion (e.g. 50%–70%) for certainty while keeping the rest variable for flexibility and extra repayments. A good mortgage broker can help you compare current fixed and variable rates.
Know Your Numbers Before You Buy
Use our free calculators to understand your borrowing power, monthly repayments, and total interest before you start your property search.