A guide to first time buyer mortgage in Australia

Buying your first home is a dream for many Australians. But it can be notoriously difficult to climb onto the property ladder. This is when it becomes most important to do your research.  

For first-time homebuyers in Australia, there are many government initiatives, grants, and schemes whose sole aim is to get you into your first home sooner. The best option for you will be the mortgage that suits your current financial situation and your long-term financial goals. Here is everything you need to know about first-time buyer mortgage options in Australia.  

Which is the best choice for a first-time buyer mortgage? 

The best mortgage for first-time home buyers is largely dependent on the buyer’s financial situation and long-term financial goals. One serious consideration is the deposit, or down payment, you are willing or able to make.  

A deposit of 20% is deemed as the ideal since it means you can avoid paying private mortgage insurance. However, there are grants and schemes available for first-time home buyers that may allow you to make a deposit of as little as 2% to 5%. (We will look more closely at the specific schemes available to first-time buyers a little further down in this article).   

First-time buyers: Interest rates 

Another major decision you will have to make is how much interest you want to pay throughout the life of the loan. Because the deposit and the interest rate affect one another, you will want to speak with your lender or a trusted mortgage professional to strike the right financial balance for you.  

To get you started, here are the basic interest rate options available to you: 

• Variable. A variable interest rate often fluctuates along with changes in the official cash rate set by the Reserve Bank of Australia. However, lenders may also make changes independently.  
• Fixed. A fixed-rate mortgage on your home loan stays the same for a predetermined period, usually at least one years to five years. After that initial period, your loan will go back to the standard variable rate.  
• Split. A split-rate mortgage is when a portion of the loan is fixed and a portion of the loan is variable. In this case, split does not mean half and half; a split loan could be 70:30 or 60:40. Again, it is important to speak to a professional about what will work best, given your financial situation. When done well, you could benefit from falling rates on the one hand or rising rates on the other.  

How does the 5% deposit scheme work? 

The 5% deposit scheme is also called the Home Guarantee Scheme (HGS). This first-time buyer mortgage allows eligible buyers to buy or build new properties with a deposit as little as 5% (2% for eligible single parents) without needing lenders’ mortgage insurance.  

The HGS is an initiative by the Australian Government to support eligible home buyers to purchase their property faster. The HGS is administered by the National Housing Finance and Investment Corporation (NHFIC) on behalf of the Australian Government, and includes the following: 

• First Home Guarantee (FHBG). This supports eligible first-time home buyers to purchase their first property sooner, with a deposit as low as 5%. Some 35,000 places are available every financial year. 
• Regional First Home Buyer Guarantee (RFHBG). This supports eligible regional first-time home buyers to purchase a property in a certain region. From Oct. 1, 2022, to June 30, 2025, 10,000 places are available each financial year.  
• Family Home Guarantee (FHG). This supports eligible single parents with at least one dependent child to purchase a property, with a deposit as low as 2%. Some 5,000 places are available every financial year to June 30, 2025. 

How the Home Guarantee Scheme works 

Under the HGS, a portion of your home loan from a participating lender is guaranteed by the NHFIC, enabling you to purchase a property with a deposit between 2% and 5% without having to pay lenders mortgage insurance. Note: This guarantee is not a deposit for a home loan or a cash payment.  

What benefits do first-time home buyers get in Australia? 

There is a lot of help out there for first-time home buyers navigating the steps to homeownership. In Australia, that help comes in the form of grants and assistance. If you are eligible, you may be able to secure a $10,000 grant under the First Home Owner Grant (New Homes) Scheme, which is managed by Revenue New South Wales. When you arrange financing to purchase your property, you can apply for the scheme. Your lender will need to be an approved agent.  

Requirements for first-time buyers 

Through the scheme, you may qualify for $10,000 toward the purchase price of the property, as well as First Home Buyers Assistance Scheme benefits. The requirements for the First Home Owner Grant (New Homes) Scheme includes: 

• That you are buying or building your first home 
• That it is a new home that no one else has lived in previously 
• That the property is worth maximum $750,000 

Eligibility 

While there are some exceptions, to qualify as a first-time home buyer:  

• It must be the first home you or your spouse have owned or co-owned in Australia.  
• You must move into the home within 12 months 
• You must live there continuously for a minimum of six months.  
• You must be 18 years old and be an Australian citizen or a permanent resident of Australia.   

How much deposit does a first-time home buyer need in Australia? 

The deposit for a first-time buyer mortgage in Australia is dependent on various factors, including the type of mortgage you qualify for. If you make a 20% deposit on most standard home loans, it will be ideal since it means you will not have to pay lender’s mortgage insurance.  

Depending on where you live, however, you may also qualify for first-time home buyers grants and assistance and can make as little as 2% down payment. In Victoria, for instance, you may qualify for one of the following: 

• First Home Owner Grant (FHOG) 
• Stamp Duty exemption or concession 
• Principal Place of Residence (PPR) concession 

If you are a member of the Australia Defence Force, you might be eligible for the Defence Home Ownership Assistance Scheme (DHOAS).  

How much is the first home grant in Australia? 

The First Home Owner Grant (FHOG) in Australia is $10,000 and available to anyone who purchases or builds their first new home, which can be a house, townhouse, apartment, unit, or similar. The home must be newly built and bought off the plan or substantially renovated.  

To qualify for this first-time buyer mortgage grant, the purchase of your new home must not be more than $600,000. If you buy vacant land and sign a building contract with a builder, the value of the vacant land is added to the value of the comprehensive home building contract and the cost of any building variations done together. The total combined cost of all of this must be $750,000 or less.  

If buying a property that has been significantly renovated by the seller, the buying price must be $600,000 or less. To be eligible for the First Home Owner Grant, you must meet these requirements: 

• Most of the property was replaced or removed 
• The tenant, seller, or builder has not lived in the home before, during, or after the renovations 
• It is the first time the property has been sold since renovations were completed 

In other words, if the person who built the home lived in it, leased it, or used it for short-term accommodation, the sale of the property is not a new home. For eligible home buyers, this grant can be paid in addition to other exemptions or concessions.  

How much should I save for my first house in Australia? 

Before you start saving for your first house in Australia, you should first determine how much money you can afford to borrow. Make sure to include other costs that are less obvious, such as conveyancing fees and stamp duty, for instance.  

A good place to start is determining how much money you need for a deposit. These calculations might look like this: 

Home cost + fees/charges - amount you can afford to borrow = deposit 

In most cases, saving for a bigger deposit will likely save you more money in the long run. In Australia, the ideal is a deposit of 20% of the purchase price of the property. You will also then need to save enough to pay for the costs of purchasing a home. 

While some lenders may only require 5%, a smaller deposit often means a larger loan plus the cost of lenders mortgage insurance. A larger deposit indicates to lenders that you are more than capable of saving money and able to manage your finances. This can help your chances of receiving approval for your mortgage loan.   

What is the Australian Government’s First Home Guarantee Scheme? 

The Australian Government's First Home Guarantee scheme (FHBG) is part of the Home Guarantee Scheme (HGS), which is a government initiative that is administered by the National Housing Finance and Investment Corporation (NHFIC) to support eligible first-time home buyers buy their property faster. 

Under this first-time buyer mortgage scheme, a portion of the buyer’s mortgage is guaranteed by the NHFIC, enabling the buyer to buy a property with as little as a 5% deposit and avoiding lenders mortgage insurance. Any guarantee for the mortgage is for up to 15% of the value of the property, which is assessed by the participating lender. The guarantee is not a deposit for a mortgage nor a cash payment. The scheme is available for eligible first-time buyers from July 1, 2022, to June 30, 2023.  

There are plenty of options for first-time home buyers in Australia. If it makes financial sense for you, you can potentially make a deposit for as little as 2% of the purchase price of the property. But before committing to one of these grants or schemes, it is important to understand the possible long-term implications. Does it make sense for your long-term financial goals? By considering both the short and long term, you will be able to enjoy your dream home—minus the stress.  

What are first-time buyers entitled to in Qld? 

Those looking for a first-tim buyer mortgage in Queensland are entitled to a grant designed to help prospective owners purchase their first properties. Those who are eligible can apply for the Queensland First Home Owners’ Grant, a state government initiative that can provide $15,000 toward purchasing or building a new property, unit, or townhouse that you currently live in and is valued at $750,000 or less. 

Queensland First Home Owners’ Grant: Eligibility requirements 

You can apply for the Queensland First Home Owners’ Grant in the following ways: 

• To the Queensland Revenue Office 
• Through a bank or lending institution 

The eligibility requirements for the Queensland First Home Owner’s Grant include: 

• The grant is paid per new home, rather than to each applicant 
• You need only one application for your new home, despite the number of applicants 
• Each applicant and their spouse must be considered when determining eligibility 
• Anyone who is or will be the owner of the new property has to be included on the application as an applicant 
• If applicable, your spouse must be included on the application, either as an applicant/co-owner, spouse, or non-applicant spouse 

Queensland First Home Owners’ Grant: Timeframe 

After you have provided your supporting documents, you can apply for this first-time buyer mortgage grant in these timeframes: 

• Purchase of property: You must apply within one year of taking possession of the new house and your title is registered.  
• Contract to build: You must apply within one year of the new house being finished. For example, when the final inspection certificate is issued. 
• You build: If you are the owner/builder, you must apply within one year of the new house being finished. For example, when the final inspection certificate is issued.  

Occasionally, the periods mentioned (one year) may be extended. If you need an extension, you will have to include a written statement explaining the reason. 

As we have seen, there are many factors that can affect your first time buyer mortgage options in Australia. It can be a very tricky road to navigate, and we advise you to speak to the best mortgage professional in your area for assistance. They can help you see the bigger picture. Learn more about home loans for first time buyers in Australia here.

Do you have experience with a first-time buyer mortgage in Australia? Let us know in the comment section below.