First home buyer terms, explained in plain English

First home buyer terms are the words and figures lenders, agents and conveyancers use during a property purchase, and understanding them helps you compare loans and avoid surprises. This first home buyer terms glossary brings the most common home loan jargon explained into one place, with each definition traced to ASIC’s Moneysmart. Use it as a quick reference while you save, get pre-approved, make an offer and settle. Every term below is written for someone buying their first home, not for the industry.

The list runs in a logical order, from the money you put in, through the loan itself, to the steps at purchase. Skim the headings, or read it through once so the language feels familiar before you talk to a lender or broker. For the bigger picture, see our overview for first home buyers.

Deposit and insurance terms

These are the first home buyer terms you meet while you are still saving.

Deposit. The cash you contribute toward the purchase price. A common savings goal is 20% of the purchase price, plus enough to cover buying costs.

Lenders mortgage insurance (LMI). Insurance that protects the lender, not you, if you cannot repay the loan. A 20% deposit will avoid you needing to pay LMI, so a deposit below 20% can trigger it. Whether it applies, and how much it costs, depends on your circumstances and lender criteria.

Loan to value ratio (LVR). The size of your loan compared with the value of the property, shown as a percentage. A larger deposit means a lower LVR. We explain this in detail in our LVR guide.

Genuine savings. Money you have built up yourself over time, which some lenders want to see as evidence you can manage repayments. What counts as genuine savings depends on the lender.

Loan and interest terms

This is the home loan jargon explained that decides what you pay each month.

Principal and interest. A loan type where your regular repayments cover the amount borrowed, the principal, plus interest on that amount.

Interest only. A loan type where your repayments only cover the interest on the amount borrowed, so the principal you borrowed is not reduced.

Fixed interest rate. A rate that stays the same for a set period, for example five years.

Variable interest rate. A rate that can go up or down as the lending market changes.

Split loan. A loan where a portion has a fixed rate and the rest has a variable rate. You can choose how to split it, for example 50/50 or 20/80.

Comparison rate. A single figure for the cost of the loan that includes the interest rate and most fees, which makes it easier to compare loans on a like-for-like basis.

Offset account. A transaction account linked to your home loan. The balance in it reduces the amount of your loan that is charged interest. Each day, your lender subtracts your offset balance from your loan balance before calculating interest. For example, $20,000 in an offset against a $500,000 loan means interest is charged on $480,000.

Redraw facility. A feature where the extra repayments you make go straight onto your loan, and you can later draw some back. This differs from an offset account, where the funds sit in a separate linked transaction account.

Buying and settlement terms

These first home buyer terms appear once you start looking and making offers.

Pre-approval. An indication from a lender of how much you may be able to borrow. Pre-approval lasts for 3 to 6 months and shows you are eligible to apply for a loan up to a certain amount, and it does not commit you to a loan.

Conditional offer. An offer that becomes a binding contract to buy only if certain conditions are met, such as valuation, finance approval or inspections.

Unconditional offer. A binding contract to buy outright, used when you have confirmed finance and are sure about the property.

Building and pest inspection. A building inspection looks for structural issues, damp, electrical safety and the cost of maintenance or repairs. A pest inspection looks for things like termite activity or other pest issues.

Stamp duty. A one-off state government property-transfer tax. You typically need to pay this within 30 days of settlement. The amount and any first home buyer concession depend on your state and circumstances.

Settlement. The settlement date is when the property title is transferred into your name and your mortgage begins.

The steps below show where some of these terms fall in the buying journey.

A worked example of one common term

The offset account is one of the terms first home buyers ask about most, because it links directly to interest. Try the borrowing power calculator to see how a loan size translates into repayments, then picture an offset balance reducing the interest portion. As an illustration, $20,000 sitting in an offset against a $500,000 loan means interest is charged on $480,000 rather than the full balance. How much that helps you depends on your balance, your rate and your lender’s product rules.

Where these definitions come from

Every figure and definition in this glossary is drawn from ASIC’s Moneysmart, the Australian Government’s free financial guidance service. Reading the source pages alongside this list can help if you want the full context on a term.

Frequently asked questions

Talk it through with someone

A glossary gets you the language, but your situation is your own. The team at Finance Lab can walk you through these terms against your real numbers and explain which ones matter most for your first purchase. Reach out when you are ready to talk it through.