Mortgages and loans for first home buyers

Most lenders prefer a 20% deposit to avoid Lenders Mortgage Insurance (LMI). However, you can buy a home with as little as a 5% deposit using certain government schemes or by paying LMI. The exact amount depends on the property price and your financial situation. Some lenders may require a higher deposit for certain property types or locations.

The First Home Owner Grant is a national scheme funded by states and territories to help first-time buyers enter the property market. Grant amounts vary by state, typically ranging from $10,000 to $20,000. Eligibility criteria generally include being an Australian citizen or permanent resident, at least 18 years old, and not having owned property in Australia before. Check your state's revenue office website for specific details and current offers.

Your borrowing capacity depends on factors like your income, expenses, debts, credit score, and the deposit you have saved. Lenders use a debt-to-income ratio to assess how much you can borrow. You can get an estimate using online borrowing power calculators, but for a more accurate assessment, speak with a mortgage broker who can take into account your full financial picture.

Common types of home loans for first-time buyers include:

• Variable rate loans: Interest rates can fluctuate but often offer more flexibility
• Fixed rate loans: Interest rates are locked in for a set period, providing payment stability
• Split loans: Combine both fixed and variable rates
• Low deposit loans: Allow you to enter the market with a smaller deposit but may require LMI.
• Guarantor loans: A family member uses their property as security for your loan.

Lenders Mortgage Insurance is a one-off payment that protects the lender if you default on your loan. It's typically required if you borrow more than 80% of the property's value. You can avoid LMI by saving a 20% deposit, using a guarantor, or accessing certain government schemes like the First Home Loan Deposit Scheme. Some professions may also be exempt from LMI.

When choosing a suburb, consider factors like:

• Your budget and property prices in the area
• Proximity to work, schools, and amenities
• Public transport options
• Future development plans for the area
• Crime rates and safety
• Lifestyle factors that are important to you
• Research historical property data, attend open houses, and spend time in potential suburbs to get a feel for the area.

Beyond the property price and deposit, budget for:

• Stamp duty (although first-time buyers may be eligible for concessions)
• Conveyancing and legal fees
• Building and pest inspections
• Mortgage registration and transfer fees
• Loan application fees
• Moving costs
• Home and contents insurance
• Council and water rates

You can use the First Home Super Saver Scheme (FHSSS) to save money for your first home inside your super fund. This scheme allows you to make voluntary contributions to your super and then withdraw these contributions (up to a limit) to use as a deposit. The scheme can offer tax benefits but has specific rules and limits, so it's worth discussing with a financial advisor.

The home buying process can vary greatly, but typically takes 3-6 months from starting your search to moving in. This includes time for property searching, loan approval, making an offer, property inspections, exchange of contracts, and settlement. The exact timeline can depend on factors like market conditions, your readiness with finances, and the complexity of the purchase.

Getting pre-approval for a home loan before you start house hunting is highly recommended. Pre-approval gives you a clear idea of your budget, shows sellers you're a serious buyer, and can speed up the final loan approval process once you've found a property. It's not a guarantee of final loan approval, but it does give you a significant advantage in your property search and negotiation process.