Everything you need to know about financing your first home

Purchasing your first home is a big leap – it’s often the biggest purchase you’ll make in your life, and initially, it can feel like there’s a lot to get your head around. There’s a heap of terminology to understand, deposits to organise, conversations with your bank or mortgage broker to be had and potential access to government support to consider.

The good news is that once you’re confident with the financial intricacies, the process begins making much more sense. Here’s what you need to know:

Understanding the lingo

It might seem like another language at first, but it won’t be long before you know your LMI from your LVRs. Here are the basics:

• Minimum deposit – most loan providers require home buyers to have a minimum 20% deposit. This can be less for first home buyers, thanks to government support or as little as 5% if you’re buying a new build; more on that here.
• Mortgage insurance – Lender’s Mortgage Insurance (or LMI) is often required if you borrow more than 80% of the property’s value. It protects your lender against financial loss if, for any reason, you’re unable to meet your repayment obligations.
• Construction home loan - Home loans with a construction option are structured differently to standard home loans. A construction option gives you the funds in stages to pay your builder at key milestones of the building journey. While a standard home loan charges you interest on the full loan amount from settlement, construction loans help you manage repayments and cash flow by offering interest-only repayments. Learn more here.
• Loan-to-value ratio – also known as LVR, is the amount you need to borrow, represented as a percentage of the value of the property you’re buying. A bigger deposit means you’ll have a lower LVR.
• Variable rate home loan – variable rate home loans leave you at the mercy of fluctuating interest rates. They can go up or down at any time, impacting your monthly repayments. However, they come with extra perks, like the ability to make additional loan repayments.
• Fixed rate home loan – fixed rate loans mean your repayments will stay exactly the same for the specific term of your loan. You can usually fix your interest rate for a period of 1-10 years. 
• Stamp Duty – this is a government-imposed tax paid over and above the purchase price. The amount you pay varies but is typically between 3-6% of the property’s total value. What is stamp duty, and how will it affect your property purchase gives you a full rundown on what to expect. There are varying first home buyer duty exemptions, concessions, or reductions on offer in each state of Australia - you can find more details in our Financing your first home eBook.
• Conveyancing and legal fees – put simply, these are the fees you’ll pay to complete the legal paperwork required when buying a home. Conveyancers, also known as Settlement Agents, are licensed professionals who specialise in property transfers. Not only can these professionals help you with all the documentary requirements involved in selling and buying a property but they can also assist you in the process of property transfers.

Do you qualify as a first home buyer?

A ‘first home buyer’ (or FHB) is defined as a person or a couple over the age of 18 who is purchasing their first residential home in Australia. Guidelines and requirements can differ from state to state, so it’s a good idea to check in with your financial advisor, conveyancer / settlement agent or mortgage broker.

Government support

In Australia, we’re fortunate to have a range of schemes and grants available to help first home buyers get on the property ladder. Here are the main ones to be aware of:

Australia-wide schemes

• First Home Guarantee – this scheme allows thousands of eligible buyers to bypass the typical 20% deposit requirement and purchase a home with as little as a 5% deposit – without paying Lender’s Mortgage Insurance. Learn more.
• First Home Super Saver Scheme – this scheme allows eligible FHBs to save for their first home within their superannuation scheme. The main benefit is the concessional tax treatment of superannuation, which will help you save money faster. Learn more.
  
  

State-specific support

• Western Australia – from one-off payments via the WA First Home Owners Grant to Buyers Assistance to the covering of incidental expenses and low deposit home loans through Keystart, it’s well worth discussing eligibility requirements with your financial advisor.
• South Australia – South Australians can potentially access a First Home Owner Grant, along with assistance through HomeSeeker SA – a scheme that aims to connect South Australians with exclusive, affordable homes.
• Victoria – if you’re building or buying a brand-new home, you could be eligible for a one-off payment of $10,000 through the Victorian Governments First Home Owner Grant. Additionally, the Victorian Homebuyer Fund is a new initiative making it easier for Victorians to enter home ownership whereby the Victorian Government could contribute up to 25% of the purchase price in exchange for an equivalent share in the property.
• Queensland – concessional stamp duty rates and a one-off payment of $15,000 are available to eligible Queenslanders that are building or buying a new residential property. Check Queensland First Home Owner Grant to find out if you’re eligible. 

Financial perks and pointers for buying brand new

Buying a brand-new home to live in comes with a few additional financial considerations – and potentially, some significant financial benefits. Make sure you’re well versed in these, as they can influence the type of home you seek out.

Get armed with the right information and move on with confidence

Buying your first home is life-changing. And once you’re equipped with the right financial knowledge, starting the search for your dream home is an exciting process. 
Get all your financial ducks in a row with our guide to financing your first home.

*Disclaimer: The information used in this document is indicative only and may not represent the final detail or accurately represent personal circumstances of each person. Cedar Woods gives no warranty concerning the accuracy of the material or information displayed in this blog. Prospective buyers should make their own enquiries and rely on their own investigations and independent advice. All information in this blog is subject to Terms of Use accessible at www.cedarwoods.com.au/Terms-of-Use.