The first home buyer guide: how to buy your first home in Australia

Buying your first home in Australia usually follows a clear path: work out your budget, save a deposit, get pre-approval, find a property, make an offer, and settle. This first home buyer guide walks through each step in plain English, explains the words lenders use, and shows where the numbers come from. The right approach for you depends on your circumstances and on each lender’s criteria, so treat this as a map rather than a set of rules.

If you want the short version: a common savings goal for a deposit is 20 percent of the purchase price plus buying costs, a smaller deposit is still possible but may mean paying lenders mortgage insurance, and pre-approval gives you a realistic price range before you start inspecting homes.

Step one: work out what you can afford

Before you look at listings, work out two numbers. The first is your borrowing capacity, which is the amount a lender may be willing to lend based on your income, expenses, debts, and the loan term. The second is your deposit, which is the cash you contribute toward the purchase.

The loan term is how long you have to pay off the loan. It affects both the size of your repayments and how much interest you pay over the life of the loan, so a longer term can lower repayments while increasing total interest. A useful starting point is the MoneySmart mortgage calculator, which helps you work out home loan repayments and how much you may be able to borrow for principal and interest loans.

To go deeper on borrowing capacity, read our companion piece in this series: How much can I borrow?

Step two: save your deposit

A common savings goal for a house deposit is 20 percent of the purchase price, plus enough to cover buying costs. Reaching 20 percent matters because of the loan-to-value ratio (LVR), which compares the loan amount to the property value. A 20 percent deposit equals an 80 percent LVR, since the loan covers the remaining 80 percent of the value.

A deposit below 20 percent is still common. The trade-off is lenders mortgage insurance.

What is lenders mortgage insurance?

Lenders mortgage insurance (LMI) generally applies when your deposit is less than 20 percent of the property purchase price. It is important to understand who it protects: LMI protects the lender if you cannot repay the loan, not the borrower. It is a cost you may pay so that a lender can approve a loan with a smaller deposit. Whether LMI applies, and how much it costs, depends on your deposit size, the lender, and your circumstances.

For more on saving strategies, see How much deposit do I need?

Step three: budget for the upfront costs

Your deposit is not the only cash you need at the start. Upfront costs of buying a home can include stamp duty, conveyancing or solicitor fees, a building and pest inspection, and home and contents insurance. These vary by state and by property, so build them into your savings target rather than treating the deposit as the full picture.

There are also government measures that may reduce the cash a first home buyer needs, such as state grants, stamp duty concessions, the First Home Super Saver scheme, and federal deposit support schemes. Eligibility and amounts change over time and depend on the state and your situation, so check the current rules before you rely on any of them. We cover who may qualify in First home buyer grants: who may qualify

Step four: get pre-approval

Pre-approval, sometimes called conditional approval, is a lender’s indication of how much it may be willing to lend you, subject to conditions. It helps you shop with a realistic price range and shows agents you are a serious buyer. Loan pre-approval is generally valid for around three to six months, so it is best obtained once you are ready to start inspecting properties in earnest.

Pre-approval is not a guarantee of final approval. The lender still assesses the specific property and confirms your circumstances before the loan is formally approved.

Step five: choose a home loan

Once you understand your budget, compare loans on more than the headline interest rate. A few terms make this easier.

A comparison rate is a single figure that reflects the cost of the loan, because it includes the interest rate and most fees. It gives you a fairer way to weigh one loan against another than the advertised rate alone.

You will also choose a repayment type and a rate type:

Watch the fees too. An application fee is a one-off payment when starting a loan, also called an establishment, up-front, or set-up fee. Ongoing fees are charged monthly or yearly for administering the loan. Two loans with the same interest rate can cost different amounts once fees are counted, which is why the comparison rate is useful.

Step six: find a property and make an offer

With pre-approval in hand, you can inspect properties inside your price range and make an offer. A conditional offer can include checks such as a building and pest inspection, which protects you from buying a property with hidden problems. If your offer is accepted, you move to finalising your loan and arranging settlement.

Step seven: finalise the loan and settle

Settlement is when the property title transfers to you and your mortgage begins. Between an accepted offer and settlement, your lender confirms the loan, your conveyancer or solicitor handles the legal transfer, and you arrange insurance.

First home buyer guide: a simple worked frame

Imagine a property at 600,000 dollars. A 20 percent deposit is 120,000 dollars and gives an 80 percent LVR, which avoids LMI. A 10 percent deposit is 60,000 dollars and gives a 90 percent LVR, which may mean LMI applies. Neither path is automatically better; the right choice depends on your savings, timeline, and the lender’s criteria. You can model your own numbers with the MoneySmart mortgage calculator or talk it through with us.