What is a first home buyer loan?

If you still need to purchase a property in Australia, you may be eligible for a first home buyer loan, which can help you secure your property with a smaller deposit. In this home buyer guide, we'll provide an overview of the first home buyer loan and other types of home loans that may be available to eligible first-time buyers. 

Understanding the different loan options allows you to decide which suits your financial situation and goals. 

Let’s get to the following commonly asked questions:

• What is a first home buyer loan?
• Are you eligible for a first home buyer loan? 
• What are the essential steps when applying for a home loan in Australia?
• What types of loans are available, and how to pick the right one?
• What documents and information will you need?

Q1. What is a first home buyer loan?

When buying your first home In Australia, the first home buyers home loan is a type of mortgage with a lower interest rate, allowing for a smaller house deposit. This allows first buyers to own a home sooner and make mortgages more accessible.

Prospective homeowners must meet eligibility criteria, such as being an Australian citizen or permanent resident. They’ll also need to prove that they can repay home loans by demonstrating they earn a specified income. 

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Q2. Are you eligible for a first home buyer loan? 

Eligible first-home buyers need to meet specific criteria, including:

1. Being an Australian citizen or permanent resident.
2. Being at least 18 years of age.
3. Never owning a residential property in Australia.
4. The property you're purchasing must be your main place of residence.
5. Meeting income and asset requirements. These vary depending on the lender and the type of loan.

In addition to meeting the eligibility criteria for a first home buyer loan, you may also be eligible for NSW government housing finance incentives, such as the first home owner grant (FHOG), the home guarantee scheme, and stamp duty concessions, which can help reduce the upfront costs of purchasing your first home and also increase your borrowing power. 

Tip: When assessing your eligibility for a home loan in Australia, it's essential to consider factors such as comparison rates, conditions that may apply, and the cost of buying, as well as options such as mortgage brokers, loan packages, and annual fees. For eligible first-home buyers, research grants or incentives that can assist with the upfront costs of purchasing a property may also be helpful.

Q3. What are the essential steps when applying for a home loan in Australia?

Are you considering home loan applications but need help figuring out where to start? Here are the main steps to prepare for the home-buying process. 

1. Save for a deposit. Save at least 5-10% of the purchase price of the property you're interested in.

2. Get pre-approval. Getting a home loan pre-approval gives you a better idea of how much you can borrow and makes applying for a loan easier.

3. Research different loan options. Comparing home loans allows you to find the best loan for your financial situation. For future stability, opt for a fixed-rate mortgage. 

4. Budget for ongoing costs. In addition to your mortgage repayments, there will be ongoing fees involved with owning a home. Ensure you budget for these costs when preparing to purchase your first property. 

Important: Reading the product disclosure statements (PDS) of various home loan options is a crucial step when considering different loan products in Australia, as it can help borrowers to fully understand the terms and conditions, fees, and features of each loan, allowing them to make informed decisions and choose a loan that is best suited for their individual needs and circumstances.

Q4. What types of loans are available, and how to pick the right one?

If you’re ready to buy your first home in Australia, you’re probably overwhelmed with home loan choices. Home loan repayments can be confusing and daunting, from principal and interest repayments to fixed and variable rates. 

Here are the most common types of loans available to first homeowners:

1. Variable rate home loans. Variable home loans have interest rates that change in response to the official cash rate set by the Reserve Bank of Australia. A variable home loan may be best for you if you favour flexibility. 

2. Fixed-rate home loans. These loans have a fixed interest rate for a fixed period, usually between one and five years. This can provide financial certainty regarding your repayments but may offer additional flexibility than variable-rate loans.

3. Low-deposit home loans. With a lower deposit required, these loans allow you to borrow up to 95% of the purchase price of your property. 

Tip: WeMoney's home loan comparison calculator is a helpful tool for comparing home loan options in Australia, allowing users to enter necessary details about their loan requirements and receive personalised results that compare interest rates, fees, and features from multiple lenders, helping them to make informed decisions and find the loan that works best for them.

Q5. What documents and information will you need?

If you’ve told yourself, ‘I’m ready to buy my first home,’ then congratulations! It’s time to start gathering the necessary documents to book an appointment and start the homebuying process. 

Here’s what you’ll need to bring to your appointment: 

1. Identification: You must provide proof of your identity, such as a passport or driver's license.

2. Income and employment: Bring details of your income and employment, including payslips, tax returns, and contracts.

3. Savings and assets: Provide proof of your savings and assets, including statements from your bank accounts. 

4. Debts and liabilities: You must provide evidence of debts and liabilities, such as credit cards or car loans.

5. Property details: Inform the lender of details on the home you wish to buy, including the property price and address.

6. First homeowner grant (FHOG): If you are eligible for the FHOG, you must provide documentation to support your claim.

7. Insurance: You may need proof of insurance, such as the lender’s mortgage and building and contents insurance, before your loans and finance can be approved.

Tip: With WeMoney's range of calculators and tools, including a home loan borrowing calculator, users can get a better understanding of their borrowing power in Australia, helping them to estimate how much they could potentially borrow for a home loan and making it easier to compare loan options and find the right fit for their needs and budget.

Summing up

If you're ready to purchase your first home in Australia, various home loans and homeowner grants can help first-time buyers. To learn more about home loans, we recommend checking out our regularly updated blog, where you can find financial advice on various topics. 

Additionally, you may be interested in reading our article "How to pay off your mortgage faster" for practical tips on reducing your mortgage term and interest charges.

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.