Home loans for first home buyers

Start with what you can actually borrow

Before grants or schemes, one number decides most of it: what a lender will lend you.

That is not a simple multiple of your income. Lenders assess:

• Your income, and how reliably they think it will continue. Base salary is treated most generously. Overtime, bonuses, commission, shift allowances and casual income are all treated differently, and the differences between lenders are large.
• Your expenses, benchmarked against a minimum living-cost figure whether or not you actually spend that much.
• Existing commitments — car loans, personal loans, HECS, buy-now-pay-later, and the limits on your credit cards rather than the balances.
• An assessment rate — a rate higher than the one you would actually pay, applied to test whether you could still afford repayments if rates rose.

That last one surprises people most. It is also why borrowing capacity can differ by well over a hundred thousand dollars between two lenders looking at exactly the same application.

Get a rough figure to work from. The borrowing power calculator applies the same buffer lenders do, so the number is a realistic starting point rather than an optimistic one.

The deposit question

The 20% figure is not a rule. It is the point at which most lenders stop requiring lenders mortgage insurance.

Lenders mortgage insurance (LMI) protects the lender, not you, if the loan goes bad. It is normally charged when you borrow more than 80% of the property’s value. It can be paid upfront or added to the loan.

You have more options than “save 20% or pay LMI”:

• Government guarantee schemes let eligible buyers purchase with a smaller deposit without paying LMI, with the government guaranteeing part of the loan. Eligibility and property price caps are set federally and change — check the current position rather than relying on what someone told you last year.
• Occupation-based LMI waivers. A number of lenders waive LMI at higher loan-to-value ratios for certain professions. If you are a nurse, teacher, police officer, paramedic, doctor or in several other fields, this is worth checking before you assume you need a bigger deposit. See your profession.
• A guarantor. A family member can use equity in their own property to cover the shortfall. It is a real commitment with real consequences for them, and it should be entered into with proper advice on both sides.
• Paying the LMI anyway. Sometimes buying twelve months earlier at today’s price beats saving another 10% while prices move. Sometimes it does not. That is a calculation, not a rule.

What help is available in Victoria

Stamp duty — usually the biggest single saving

Victoria offers first home buyers a full exemption from stamp duty on properties up to a threshold, and a sliding concession above it up to a second threshold, where the property will be your principal place of residence.

At the time of writing the full exemption applies up to $600,000, with the concession phasing out at $750,000. On a $600,000 purchase that exemption is worth about $31,000 — comfortably the largest first home buyer benefit in Victoria. The stamp duty calculator shows the figure for your price.

Thresholds and conditions do change. Confirm the current position with the State Revenue Office before you budget around it.

First Home Owner Grant

A grant of $10,000 is available for first home buyers purchasing or building a new home in Victoria, up to a value cap. It does not apply to established homes.

That distinction matters a great deal here. Most of what is being built across Mickleham, Kalkallo, Donnybrook and Wollert is new — so a large share of first home buyers in this corridor are eligible for the grant where a buyer in an established suburb would not be.

Federal guarantee schemes

Housing Australia administers the federal guarantee scheme, which lets eligible first home buyers purchase with a reduced deposit and no LMI. Single parents and legal guardians have their own pathway within it.

Eligibility criteria and property price caps are set federally and have changed more than once. We will check your eligibility against the current rules rather than the ones that applied last year.

Shared equity

Shared equity arrangements involve government taking a proportional stake in the property in exchange for reducing what you need to borrow. They reduce your repayments but mean you do not own the whole property, and there are rules about buying the share back.

They suit some people well and others poorly. It depends heavily on your income trajectory and how long you plan to stay.

Buying in a new estate

This is the normal case across Melbourne’s north, and it comes with timing issues that catch people out.

Land often settles long after you buy it. You might sign on a lot that does not title for twelve, eighteen or twenty-four months. Loan approvals do not last that long — they typically expire in three to six months. Your financial position gets reassessed at the end of that wait, against whatever lending policy and rates apply then, not now.

Two-part contracts change your stamp duty. Where land and build are separate contracts, duty is generally calculated on the land value alone rather than the finished house and land total. On a house and land package that can be a very substantial difference. It depends on the contract structure, which is worth understanding before you sign.

Valuations can come in under contract price. In a new estate, if the market softens between signing and settlement, the lender’s valuation may not match what you agreed to pay — and the lender lends against the valuation. That gap becomes cash you have to find.

None of these are reasons not to buy in a new estate. They are reasons to have the finance structured with the timing in mind. There is more detail on building and house and land finance.

What to do first

1. Get a realistic borrowing figure, based on your actual income and commitments rather than an online estimate.
2. Understand your genuine deposit position — savings, gifts, grants and what each scheme would change.
3. Check whether your occupation opens anything up. It costs nothing to ask and is frequently missed.
4. Then look at property. Not the other way around. Falling in love with a house before knowing your numbers is how people end up disappointed.

If the answer turns out to be “not yet”, you will hear that — along with specifically what would need to change and roughly how long it might take.