Using a First Home Buyer Broker: What a Mortgage Broker Does for You

A first home buyer broker is a mortgage broker who helps you arrange a home loan when you are buying your first place. In short, a mortgage broker is a go-between who deals with banks or other lenders to arrange a home loan on your behalf. For a first home buyer, that can mean less time chasing lenders and more help understanding what a loan actually costs. A broker cannot promise you a loan or a particular rate, because approval depends on your circumstances and each lender’s criteria, but a good broker can guide you through the steps and explain your options in plain language.

This guide explains what a first home buyer broker does, how brokers are paid, the questions to ask, and how to weigh up a broker against going straight to a bank.

What a first home buyer broker does

A broker sits between you and a panel of lenders. Rather than applying to one bank at a time, you give your details once and the broker works out which loans you may be eligible for across the lenders they deal with.

For a first home buyer, a broker can typically help you:

• Work out how much you may be able to borrow, based on your income, expenses and deposit.
• Compare loans from several lenders, including the interest rate, fees and features.
• Explain first home buyer assistance you may be able to use, such as the First Home Super Saver scheme or the Australian Government 5% Deposit Scheme.
• Prepare and lodge your application and answer the lender’s questions.

A broker does the legwork, but the final decision on whether to lend, and on what terms, always rests with the lender.

How a first home buyer broker is paid

Most brokers are paid by the lender, not by you. Lenders pay brokers a commission, usually a percentage of the loan amount, and this typically has both an upfront payment and an ongoing payment over the life of the loan.

Because the broker is paid by the lender, the cost of their service is usually built into the loan rather than charged to you separately. A broker must give you information about the commissions they may receive, so you can see how they are paid before you commit.

Sometimes a broker may charge you a fee directly. If they do, they must set out the proposed fee in a written quote, and you must sign that quote before the broker provides the service and requests payment. A broker is not entitled to request payment of a fee before providing their services, so be cautious if anyone asks for money upfront.

Broker versus bank: how to weigh it up for your first home

When you go straight to a bank, you see only that bank’s products. When you use a broker, you can compare loans across the lenders on the broker’s panel in one conversation. The right choice depends on your circumstances, how much time you have, and how confident you feel comparing loans yourself.

Neither path can guarantee approval or a particular rate. Whichever you choose, it helps to compare the comparison rate, which is a single figure showing the cost of the loan that includes the interest rate and most fees. To understand the numbers behind your own situation, see What is lvr first home buyer.

Questions to ask a mortgage broker as a first home buyer

Asking a few clear questions early can help you understand the service and how the broker is paid. Useful questions include:

1. Which lenders are on your panel, and roughly how many loans can you compare for me?
2. How are you paid, and will you receive a commission from the lender I choose?
3. Will you charge me any fee directly, and if so, can I see it in a written quote first?
4. Are you a licensed credit provider or a credit representative, and what is your licence number?
5. Which first home buyer schemes might I be eligible for, and how do they affect my deposit?
6. What is a comparison rate, and how do the loans you are suggesting compare on that figure?

A broker must hold a credit licence or be a credit representative listed on the Australian Securities and Investments Commission registers. If a broker is not on one of those lists, they are operating illegally, so it is reasonable to check before you proceed. For more on the traps to watch, read First home buyer mistakes.

How a broker helps with your deposit and lenders mortgage insurance

Your deposit shapes the whole loan, so this is often where a first home buyer broker adds the most value. A common target is a deposit of 20% of the purchase price plus enough to cover buying costs, because a 20% deposit avoids lenders mortgage insurance.

Lenders mortgage insurance, often shortened to LMI, can apply when your loan-to-value ratio is above 80%, in other words when your deposit is under 20%. LMI is a one-off fee that protects the lender if you cannot repay the loan. It does not protect you. As a rule, the lower your loan-to-value ratio, the lower your costs and the better your chance of loan approval.

A broker can also explain assistance that may reduce how much deposit you need:

• The First Home Super Saver scheme lets you withdraw up to 15,000 dollars of voluntary super contributions each year, up to 50,000 dollars in total, to put towards a first home.
• The Australian Government 5% Deposit Scheme lets eligible first home buyers purchase with a deposit as small as 5% without paying LMI.

Eligibility for these schemes depends on your circumstances and the scheme rules, so a broker can help you check whether you may qualify before you rely on them. You can also estimate repayments yourself with a home loan repayment calculator before you speak to anyone. Try the borrowing power calculator to see a rough figure first.

The home loan steps a broker guides you through

Buying a first home usually follows a clear sequence, and a broker can support you at each step:

Comparing at least two lenders, and looking at the comparison rate rather than only the headline interest rate, helps you see the real cost of each option. If you are buying in our home market, see Buying first home adelaide.

Frequently asked questions

Talk to the team at Finance Lab

If you are buying your first home and want help comparing loans across lenders, the team at Finance Lab can walk you through your options and the schemes you may be eligible for.