Understanding the basics of purchasing your first home

What deposit do you need to purchase your first home?

Most lenders require a deposit of at least 5% of the property value, though a 20% deposit allows you to avoid paying Lenders Mortgage Insurance. The actual deposit you need depends on whether you use a government scheme, what LMI costs apply, and how much you can demonstrate in genuine savings.

Consider a buyer looking at a property within the Australian Government 5% Deposit Scheme price cap for their state. With a 5% deposit, Housing Australia provides a guarantee to the lender of up to 15% of the property value, enabling the borrower to reach a combined deposit and guarantee of 20% without paying LMI. The buyer saves thousands in upfront costs and can enter the market sooner.

Without access to the scheme, the same buyer with a 5% deposit would typically need to pay LMI, which is calculated on a sliding scale based on loan amount and LVR. The premium is a cost borne by the borrower, and depending on the loan size, can range from a few thousand dollars to over $20,000. This cost is usually added to the loan amount rather than paid upfront, which increases the total loan and ongoing repayments.

How the Australian Government 5% Deposit Scheme works

Eligible first home buyers can purchase with a deposit of as little as 5% of the property value under the Australian Government 5% Deposit Scheme. No income caps apply and no annual place limits apply. Applications are made through a panel of participating lenders, not directly to Housing Australia.

Property price caps vary by state and region. In NSW, the cap is $1,500,000 in capital cities and regional centres and $800,000 in other areas. In VIC, the cap is $950,000 in capital cities and regional centres and $650,000 in other areas. In QLD, the cap is $1,000,000 in capital cities and regional centres and $700,000 in other areas. Both the purchase price and the lender's assessed value of the home must be at or below the applicable cap.

Fixed, variable and split loan structures may be available depending on which lender you apply through. The scheme applies to both new and established homes, provided the property will be your principal place of residence.

Stamp duty concessions and grants in your state

In NSW, a full transfer duty exemption applies to new and established homes valued up to $800,000, with a sliding concession on properties valued between $800,001 and $1,000,000. In VIC, a full stamp duty exemption applies on properties valued up to $600,000 and a sliding scale concession on properties valued from $600,001 to $750,000. In QLD, the maximum first home concession deduction is $17,350 for established homes valued up to $709,999, phasing out to nil at $800,000 or more.

The grant structure differs across states as well. The NSW FHOG is $10,000 for new builds or substantially renovated homes only, with a purchase price cap of $600,000 or a combined land and build cap of $750,000. The Victorian FHOG is $10,000 for new homes valued up to $750,000. The QLD FHOG is $15,000 for new homes valued under $750,000 for contracts signed from 1 July 2026.

In our experience, buyers who research their state's concessions before applying for home loans can often save tens of thousands of dollars. These concessions apply on top of federal schemes in most cases, making the total benefit substantial.

Fixed rate, variable rate or split loan structure

A variable rate home loan allows the interest rate to move up or down in line with market conditions and lender pricing decisions. Repayments can change, but you retain flexibility to make extra repayments without penalty and access features such as an offset account.

A fixed interest rate home loan locks in the rate for a set term, typically between one and five years. Your repayments remain unchanged during the fixed period, which provides certainty for budgeting. However, fixed loans usually restrict extra repayments and may not offer offset accounts. If you exit the loan early or refinance before the fixed term ends, break costs can apply.

A split loan divides your borrowing between fixed and variable portions. You gain some certainty on part of the loan while keeping flexibility on the remainder. This structure suits buyers who want predictable repayments but also want the option to make extra repayments or access an offset account on the variable portion.

When assessing which structure suits your circumstances, consider how stable your income is, whether you plan to make lump sum repayments, and how comfortable you are with potential rate movements. Many first home buyers benefit from discussing these trade-offs with a broker before committing to a loan structure.

What lenders assess in your home loan application

Lenders assess your capacity to service the loan by reviewing your income, expenses, existing debts, and the loan amount you are applying for. APRA requires all ADIs to assess new borrowers' capacity to service a home loan at an interest rate that is at least 3.0 percentage points above the loan product rate. This serviceability buffer ensures you can still afford repayments if rates rise.

Each ADI may lend up to 20 per cent of new owner-occupier loans and up to 20 per cent of new investor loans to borrowers with a total DTI ratio of six times or greater. If your total debt is more than six times your annual income, you may still be approved, but the lender's capacity to lend in that DTI band is limited.

Your credit history, employment status, and the type of property you are purchasing also influence the assessment. Lenders will verify your savings history, confirm the source of your deposit, and assess any other financial commitments such as personal loans or credit card limits. Understanding your borrowing capacity before you start property hunting gives you a realistic price range and avoids disappointment.

Should you get pre-approval before looking at properties

Home loan pre-approval provides conditional approval from a lender before you sign a purchase contract. It confirms how much you can borrow, subject to property valuation and final verification of your financial position. Pre-approval gives you confidence when making an offer and demonstrates to vendors and agents that you are a serious buyer.

Pre-approval is typically valid for three to six months, depending on the lender. During that period, your financial circumstances must remain materially the same. If you change jobs, take on new debt, or your income drops, the pre-approval may no longer be valid.

In our experience, buyers with pre-approval in place are better positioned at auction and can move quickly in a tight market. It also allows you to identify any issues with your application early, giving you time to address them before you find the right property.

How offset accounts reduce the interest you pay

An offset account is a transaction account linked to your home loan. The balance in the offset account reduces the loan balance on which interest is calculated, without you losing access to those funds. If you have a loan of $500,000 and $20,000 in your offset account, you pay interest on $480,000.

Offset accounts are most commonly available on variable rate home loans. The benefit compounds over time as you build equity and reduce the total interest paid over the life of the loan. Unlike making extra repayments directly into the loan, funds in an offset account remain accessible, which provides flexibility for unexpected expenses or planned purchases.

For buyers who maintain a buffer in savings or who receive irregular income such as bonuses or commission, an offset account can deliver meaningful interest savings while preserving liquidity. When comparing home loan products, check whether the offset account is fully linked or only partially linked, as partial offsets reduce the benefit.

The difference between principal and interest and interest only repayments

A principal and interest home loan requires you to repay both the amount borrowed and the interest charged each month. Over time, you reduce the loan balance and build equity in the property. This is the standard repayment structure for owner-occupied home loans and is required by most lenders unless you meet specific criteria for interest only repayments.

Interest only repayments mean you pay only the interest charged each month, without reducing the loan balance. The principal remains unchanged during the interest only period, which is typically between one and five years. At the end of that period, the loan reverts to principal and interest, and repayments increase to account for the shorter remaining term.

Interest only loans are more common for investment properties, where the borrower may prioritise cash flow or tax deductions. For owner-occupied properties, lenders generally require a strong financial position and a clear reason for the interest only structure. Under current prudential settings, interest only loans attract higher capital risk weightings for lenders, which can flow through to slightly higher interest rates.

What happens during the settlement process

Settlement is the final stage of the property purchase, when ownership is legally transferred from the vendor to you. Your lender releases the loan funds to your solicitor or conveyancer, who then pays the vendor and any outstanding amounts such as adjustment for council rates or water charges. Once settlement is complete, you receive the keys and become the registered owner.

The timeline from contract exchange to settlement is usually 30 to 90 days, depending on what is negotiated in the contract. During this period, your lender will conduct a property valuation, finalise loan documentation, and arrange for the mortgage to be registered on the title. Your solicitor or conveyancer coordinates with the vendor's representative to ensure all conditions are met and funds are transferred on the agreed date.

If you are using a government scheme such as the Australian Government 5% Deposit Scheme, the guarantee documentation must also be finalised before settlement. Any delays in providing information to your lender or solicitor can push back the settlement date, so respond promptly to requests and keep all parties informed of your progress.

Why some buyers choose to refinance after purchasing

Some buyers refinance within a few years of purchasing to access a lower interest rate, consolidate debt, or unlock equity for renovations or investment. Refinancing can also allow you to switch loan structures, add features such as an offset account, or move to a lender with more suitable products as your financial position improves.

If you initially paid LMI and your property has increased in value, refinancing with a lower LVR may allow you to access better rates without paying LMI again. Alternatively, if your income has increased or your expenses have reduced, you may now qualify for products that were not available when you first purchased.

Before refinancing, compare the benefit of a lower rate or improved features against any exit fees, application fees, and the cost of a new valuation. In some cases, staying with your current lender and negotiating a rate reduction is more cost-effective than refinancing. A loan health check can help you determine whether refinancing makes sense for your circumstances.

Call one of our team or book an appointment at a time that works for you. We can assess your eligibility for government schemes, compare home loan options from lenders across Australia, and guide you through the application and settlement process.

Frequently Asked Questions