Home loans
How much do you need for a house deposit?
By Megan Birot
What is a first home buyer loan?
A first home buyer home loan is for people buying their first home or investment property. It’s similar to a standard home loan for existing homeowners, with the distinction that some lenders provide discounted rates, reduced fees, or sign-up incentives for first home buyers.
A popular option for first home buyers are 'no frills' home loans. These typically come with cheapest home loan rates, but don’t have features like an offset account. This may not be a concern for first time buyers with limited savings left after purchasing their home and who have little need for these features initially.
How your deposit impacts your first home buyer loan
Your loan-to-value ratio (LVR) is your deposit amount in relation to your property's value — it represents your risk as a borrower. For instance, if you have a $120,000 deposit to buy a $600,000 home, you'd need to borrow $480,000 from the bank, resulting in an 80% LVR. In other words, you’re borrowing 80% of the property’s value, and your 20% deposit covers the rest.
LVR is a major factor lenders consider when evaluating your borrowing capacity and interest rate. That's why when you see a rate advertised, you'll see 'based on an LVR of XX' in the fine print.
The larger your deposit, the lower your LVR, and vice versa. A lower LVR reduces the lender's risk, and as a result your interest rate (see the example below from Ubank).
If you have less than a 20% deposit (your LVR exceeds 80%), you may need to pay lender’s mortgage insurance (LMI). This is a one-off insurance premium that covers the lender against the risk of default. LMI can cost around 1-5% of your home loan amount.
Mansour Soltani, Money's Home Loans Expert
“First home buyers may not qualify for the lowest interest rates initially as they often start with a higher LVR than existing homeowners who may have built up property equity. But as you pay down your mortgage, your LVR will decrease, and you’ll qualify for better interest rates over time when you refinance (switch to a different loan or lender).”
Mansour Soltani, Money's Home Loans Expert
How to plan your first home buyer deposit
Most lenders only require a 5-10% deposit for a first home buyer loan, although you may have to pay LMI. This is unless you have a guarantor securing part of your loan or apply through the First Home Guarantee (FHBG). This means you could borrow up to 95-90% of the property’s value.
In practical terms, if you had a 10% deposit ($60,000) to buy a $600,000 home, you could borrow $540,000 from the bank, and add LMI into the loan. Most lenders typically limit your combined loan amount and LMI to a maximum of 97% LVR.
Saving a 20% deposit is no longer the golden rule
- According to a recent Helia survey, 75% of first home buyers are saving less than a 20% deposit due to increased cost of living pressures and rising property prices.
- About 55% of first home buyers paid LMI in 2024, compared to 36% in 2023.
First home buyers were traditionally told to save a 20% deposit to avoid LMI. For the average mortgage in Australia, this would mean saving around $110,000. However, as Australia’s house prices continue to soar, saving 20% of a property’s value is becoming harder for many prospective first home buyers.
For some, buying a home with a smaller deposit allows them earlier entry into the property market despite increasing the overall cost of borrowing. You’ll need to consider your financial situation and whether paying LMI makes sense for you in terms of affordability and your long-term goals.
Consider buying further away & using LMI to enter the housing market sooner
"Given the varying price of houses between suburbs and regions, it may be beneficial to choose an area further away than what you ideally want, so that the purchase price is more in line with your budget and you can buy with a smaller deposit. LMI is a very viable option if you only have a small deposit, as it will help you get into the market sooner. The longer you wait to enter the market, the more prices are likely to increase, so the deposit you need in the future is usually more than you need right now."
Peter White AM, Managing Director of the Finance Brokers Association of Australia (FBAA)
Home loan options for first home buyers
Here are the main home loan options available to first home buyers, sorted by interest type, repayment type, and what you plan to do with the property.
Owner-occupier home loan
A home loan to buy a property you intend to live in. Owner-occupier home loans generally have lower interest rates as they’re considered less risky than investment loans.
Investor home loan
A residential investor home loan to buy a property you want to rent out (called an investment property). Investment home loans generally have higher interest rates because investors are considered riskier borrowers compared to owner-occupiers.
Variable rate home loan
Your interest rate can go up and down over the life of the loan. Your repayments will be lower when interest rates drop but higher when they go up. Some first home buyers may choose a variable rate home loan as they often come with extra features such as an offset account (that reduces the interest on your loan) and redraw. With a variable rate loan, you can make extra repayments and build more equity in your home.
Fixed rate home loan
The interest rate on the loan is fixed for a period of time — typically between 1-5 years. Some first home buyers may like having certainty over their repayments in the first few years as it makes it easier to budget. However, there’s usually limited flexibility to make additional repayments with a fixed rate loan and it's less likely you'll have access to extra features like an offset account. Break fees also apply if you want to refinance. Most borrowers who fix their mortgage interest rate do so for three years or less, according to the RBA.
Split home loan
A split loan has a fixed and variable rate component. This gives you the certainty of fixed rate repayments on a portion of your loan and the flexibility of a variable loan on the rest. You can choose the proportion of your split, whether it’s 50/50, 60/40 or 70/30 etc. There’s no golden ratio, it will depend on your financial situation.
Construction loan
If you’re building your first home, you’ll generally need a construction loan. This type of loan works differently to standard loans, with funds released by the lender gradually as the build progresses. You generally need a fixed-price contract with a builder to be approved for a construction loan. Many first home buyers opt to build a new home, as this often makes them eligible for government cash grants.
Principal & interest (P&I) loan
As the name suggests, with a P&I loan, you pay both the principal of your home loan and the interest. Your regular repayments will be higher, but you’ll pay less interest over the life of the loan. This is the most common type of loan repayment structure for owner-occupiers as it helps build equity in your home from day one.
Interest-only loan
With an interest-only home loan you only pay the interest portion of your loan for a set period (up to five years). Your mortgage repayments will be lower during that period, but it means you'll pay more interest over the life of the loan (which may be 25 years or more). Interest-only loans are popular among investors to free up more cash, and interest on the loan may be fully tax deductible.
Home loan features, fees & other costs for first time buyers
Home loan features for first home buyers
Offset account An offset account is a transaction account linked to your home loan where every dollar goes towards offsetting the interest of your mortgage. So, if you have a $600,000 mortgage and $10,000 in your offset account, you'll only be charged interest on $590,000. Mansour recommends having your salary paid into your offset account. Since interest on your home loan is calculated daily, keeping money in your offset account every day helps save on interest.
Extra repayments Most home loans offer the option to make extra repayments on top of your minimum mortgage repayments. This allows you to pay off your home loan faster and save on interest. As a first home buyer, you might not initially have the ability to make additional repayments. However, as you rebuild your savings, this could become an option to consider. Fixed-rate home loans may limit additional repayments to $10,000 or $20,000 per year.
Redraw facility Allows you to withdraw any extra repayments you've made on your home loan. You can use your redraw facility to free up cash for any purpose (e.g. cover unexpected expenses or fund small renovations). Additional repayments in your redraw facility reduce your interest payable. Keep in mind there are differences between redraw and offset.
Portability The ability to transfer your home loan to another property without incurring fees. This saves you the trouble of having to go through the refinancing process if you move home and to keep your fixed rate without break costs. This feature can be beneficial if your first home is a stepping stone to your dream home, which is often the case for first home buyers.
Repayment holiday Some lenders may allow you to pause or reduce your home loan repayments for a period of time. Repayment holidays are granted on a case-by-case basis. Remember that this will increase your future repayments as accrued interest will be added (capitalised) to your home loan balance. This feature can be handy during parental leave or if you anticipate a career change with a temporary reduction in income.
Cashback offers & introductory rates Some lenders offer introductory rates and cashback deals to first home buyers to win their business. Just be sure to check the rollover rate after the introductory period is still competitive, as well as the interest rate on any cashback home loan.
Home loan fees
Application fee This is an upfront fee to set up your home loan. It’s also known as a loan processing fee or establishment fee. Application fees can range from $150 to $750.
Service fees Monthly service fees (or account keeping fees) cover the costs of managing and keeping your home loan account open. Account keeping fees can range from $8 to $10 per month (sometimes more).
Annual package fee A yearly fee charged on a package home loan to bundle your mortgage with other financial products like a credit card or savings account. Annual package fees can range from $300 - $500, depending on the loan product.
Legal, valuation & settlement fees These fees compensate the lender for the legal paperwork, property valuation and settlement. They are likely to be the most expensive fees in the home-buying process.
Exit fee You might pay an exit fee (or a discharge fee) when you pay your mortgage in full. This covers the cost of processing and closing out the loan. Early exit fees or break costs apply when you pay off your home loan early.
Feature fees Some loans charge a fee to use certain features like your redraw facility or extra repayment option. Consider the home loan fees against the benefits the feature provides.
Additional first home buyer costs
There are additional first home buyer costs that you’ll need to budget for on top of your saved deposit, and that can’t be rolled into your home loan, including:
Stamp duty & government fees Stamp duty is a state government tax calculated as a percentage of the property’s value, ranging from 3-5%. Each state or territory calculates stamp duty differently and has different rules on how it applies. Most states offer stamp duty concessions or exemptions to eligible first home buyers. Use a stamp duty calculator to estimate your costs.
Conveyancing fees When you buy a home, you’ll usually need to employ a conveyancer or solicitor who specialises in handling contract negotiations and lodging all required legal paperwork, such as the contract of sale and title transfer. Conveyancing fees can range between $1,000 and $2,000. Your conveyancer may also charge fees for title searches and other administrative expenses.
Building & pest inspections You’ll need to get a building and pest inspection done before you sign the contract to buy your home. It’s usually included as a condition of sale. This is to ensure that the home is structurally sound (i.e. has no major structural defects) or pest problems like a termite infestation. Building and pest inspections combined can cost between $200 and $1,000, depending on the size of the property and your location. The buyer (you) will be responsible for this cost.
Moving costs After buying your home comes moving (if you’re an owner-occupier). If you hire a removalist you could pay upwards of $1,000 for the service, depending on how much furniture and belongings you have, mileage, and if you require additional boxing and wrapping. You could opt to DIY to save money by hiring a truck or van to get the job done with family and friends.
Home insurance If you’re buying a standalone house, you’ll generally need to take home insurance before settlement and taking ownership of the property (the rules on this vary by state). For strata properties, such as apartments or townhouses, strata insurance is generally included in the strata fees and covers the building. You may also want to consider contents insurance once you have moved in.
Government support for first home buyers
First Home Owner Grant (FHOG)
Most states and territories in Australia have a First Home Owner Grant (FHOG) — a cash grant for eligible first home buyers towards buying a new home. The FHOG is not available if you’re buying a home that’s been lived in. Some lenders might consider including your FHOG as part of your deposit, while others may not.
Here are the first home buyer grants in each state:
- VIC: $10,000 FHOG towards buying or building a new home valued up to $750,000.
- NSW: $10,000 FHOG towards buying a new home valued at $600,000 or house and land package valued up to $750,000.
- QLD: $30,000 FHOG towards buying or building a new home valued up to $750,000 (until June 2025).
- WA: $10,000 FHOG towards buying or building your first new home valued up to $750,000 in Perth metropolitan areas.
- SA: $15,000 FHOG towards buying or building a new home valued up to $650,000.
- NT: $50,000 FHOG towards buying or building a new home (no price caps).
- TAS: Up to $10,000 FHOG towards buying or building a new home.
- The FHOG was discontinued in the ACT.
First Home Guarantee (FHBG)
- The First Home Guarantee (FHBG) is a federal government initiative that can help eligible first home buyers buy a home with a minimum 5% deposit without having to pay LMI. That’s because the government (Housing Australia) is your guarantor for up to 15% of the first home’s value. There are 35,000 FHBG places available for FY 2024-25.
- There’s also the Regional First Home Buyer Guarantee (RFHBG) which supports eligible first home buyers to buy a home in a regional area with a deposit starting from 5%. There are 10,000 RFHBG places available for FY 2024-25.
About a third of first home buyers in Australia have used a government guarantee scheme in the last financial year, according to the National Housing Finance and Investment Corporation (NHFIC).
First Home Super Saver (FHSS)
The First Home Super Saver (FHSS) scheme allows first home buyers to withdraw up to $50,000 of voluntary super contributions (along with associated earnings) for a home deposit. Contributions released under the FHSS scheme can be used to buy a new or existing home, but not an investment property or vacant land (unless you have a contract to build).
Before signing a contract for your first home, you generally need to apply for and receive a FHSS determination from the Australian Taxation Office (ATO). After signing the contract, you then apply for release with your super fund.
Help to Buy scheme
The Help to Buy Scheme is expected to commence sometime in late 2024. Although not specifically designed for first home buyers, the Help to Buy scheme is a new national shared equity scheme allowing low-to-middle-income earners to buy a property with a deposit of as little as 2%, with the government contributing 30-40% equity towards the purchase.
Income thresholds apply. To be eligible, single homebuyers must earn less than $90,000 annually and couples less than $120,000 per year.
First home buyer stamp duty exemptions & concessions
Check your state's stamp duty exemptions & concessions for first home buyers
- Victoria: Eligible first home buyers can get an exemption on stamp duty in VIC for properties valued under $600,000. Concessional rates then apply for properties valued up to $750,000.
- New South Wales: Eligible first home buyers can get an exemption on stamp duty in NSW for homes valued under $800,000 and vacant land under $350,000. Concessional rates apply after that.
- Queensland: Eligible first home buyers can get an exemption on stamp duty in QLD for homes valued under $700,000 and vacant land under $350,000. Concessional rates apply after that.
- Western Australia: Eligible first home buyers can get an exemption on stamp duty in WA for properties valued under $450,000 and vacant land under $300,000.
- South Australia: Eligible first home buyers can get an exemption on stamp duty in SA if they buy or build a new home. There are no property price caps.
- Australian Capital Territory: Eligible first home buyers can get an exemption on stamp duty in the ACT for properties valued under $1,000,000 based on household income and number of dependent children.
- Northern Territory: The only exemption eligible first home buyers can get on stamp duty in the NT is for house and land packages under the House and Land Package Exemption (HLPE).
- Tasmania: Eligible first home buyers can get a 50% concession on stamp duty in TAS for properties valued under $600,000.
Impact of credit & debt on your borrowing capacity
Mansour Soltani, Money's Home Loans Expert
“For every $10,000 of credit you hold, it can decrease your borrowing capacity by up to $50,000. Another way to put it is for every $1 of debt you hold, it decreases your borrowing capacity by $5. Debts can include personal loans, credit cards (even if you pay off your balance in full each month) and HECS debts.”
Mansour Soltani, Money's Home Loans Expert
How to apply for a first home buyer home loan
1
Complete the lender’s home loan application form
Fill out the lender’s home loan application form and prepare all your supporting paperwork like payslips, identification documents, etc. You should notify your lender if you intend to use the First Home Guarantee (FHBG) or any other government scheme, as they will typically handle this application. If you’re using a mortgage broker, they should guide you through the whole application process from start to finish.
2
The lender will assess your borrowing capacity
Your lender will first check your home loan eligibility and borrowing capacity — the maximum amount you can borrow. They will check your income against your expenses and liabilities to estimate how much you can borrow and apply an additional serviceability buffer of 3% (to ensure you can still afford your mortgage if interest rates rise). Liabilities include any debt you may have, including credit card debt, HECS debt or other student loans, and buy now, pay later payments.
3
Get conditional approval
You will be asked to submit all your supporting documents at this stage. You can ask for pre-approval (or conditional approval), which confirms you qualify for a loan and for how much. The lender will assess your financial information and credit score to determine this. Pre-approval is valid for up to three months, depending on the lender. Keep in mind pre-approval is not a formal approval. If your employment or financial situation changes after pre-approval, the lender can still deny your application.
4
The lender will conduct a credit check
A credit check will be conducted before your home loan application can progress to the next stage. A home loan specialist will check your credit file for any outstanding debts, missed payments, defaults, or directorships (if you own a business). Keep in mind that the lender will have to ask your permission before conducting an official credit check.
5
The lender will conduct a property valuation
In the meantime, the lender will order a valuation of the property you want to buy to determine its market value and your LVR. The valuation will either be completed electronically based on previous comparable sales data, or there may be a physical inspection of the property by an independent valuer. The lender will conduct a title search to ensure the seller’s name is on the contract of sale and to look for any caveats (i.e. a type of interest that prevents the property from being sold).
6
Get unconditional approval
Once all due diligence is done, you may be granted unconditional approval to seal the deal on your property purchase. Your lender will issue you a formal loan offer detailing the terms and conditions of the loan, including your rate. Review the loan offer carefully with your conveyancer and sign it if you accept the terms.
7
Get ready to settle
Your lender will finalise your loan through to settlement and disburse the funds to the seller. Your deposit will be taken out of the seller’s conveyancer’s trust account at settlement. Your conveyancer will prepare and lodge all the required documents for the property to change hands and will manage your home loan registration and property title transfer.
8
Review your home loan regularly
You should review your home loan every couple of years to ensure you're still on a competitive rate. Your LVR will decrease as you pay down your mortgage and this means you could qualify for better interest rates over time if you decide to refinance your home loan.
Documents you need to provide for a first home buyer mortgage
First home buyers applying for a home loan will typically need to provide:
- Proof of income, including two payslips for the year to date or tax returns for the year to date if self-employed
- Proof of your assets (e.g. savings, shares) and liabilities (e.g. other loans)
- 100 points of ID (e.g. driver’s licence, passport)
First home buyers with a deposit of less than 20% may be asked to provide additional paperwork, including:
- Bank statements showing your deposit has been accrued over time and sitting in a bank account for at least three months.
OR
- A tenant ledger or rental reference letter signed by a real estate or property manager confirming you’ve always paid rent on time. The letter should show your name, start lease date and weekly rent sum.
First home buyers who can't provide the standard documentation that's required (e.g. self-employed borrowers) may need to consider a low doc home loan.
FIRST HOME BUYER CASE STUDY
Money’s Senior Finance Writer, Megan Birot, shares her first home buyer story
Here’s the truth. The hardest part of buying my first home was saving for the deposit. I managed to set aside $50,000 (10%) of my home’s value. It took me about 3 years (and a couple of side hustles) to save that amount because I was renting in the meantime and a bag of cheese cost $10 at the supermarket.
