Your Guide to Purchasing Your First Home

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First Home Buyer Basics

If you’re reading this, give yourself a pat on the back for taking the initial steps to purchasing your first property. It’s no easy feat, and there’s a lot to learn from here.

So, before you take the plunge and start saving up and applying for home loans, let’s break down some first home buyer basics you’ll need to know.

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Term	Definition
Cash rate	Set by the Reserve Bank of Australia, it is the interest rate on unsecured overnight loans between banks. Simply put, it’s the interest that banks pay on the money they borrow.
Certificate of title	Legal documentation of title that shows who owns the land and identifies the land itself. This includes details like mortgages or other interests on the land.
Construction loan	A specific loan used for building or renovating property. Unlike a traditional mortgage, construction loans drip-feed the funds to the borrower throughout the building stages.
Contract of sale	Contract for the sale of the property between the seller and the buyer.
Conveyancer	Licensed professional to tend to the legalities of transferring ownership from the seller to the buyer. Assists both buyers and sellers throughout the sales process.
Comparison rate	Tool to find the ‘true cost’ of a loan. A rate that factors in the interest rate and potential fees, based on a $150,000 secured loan, over a 25-year term.
Cooling off period	A period of time in which you may cancel your offer on a property without penalty or cost.
Fixed rate	An interest rate that is locked in for a set period of time
Guarantor	A third party that “guarantees” part of a home loan against a security, such as equity in their property. This may be for the entire loan, or for part – or all – of the deposit. A guarantor acts as a support to back up the application of another, typically family.
Interest-only	When you only pay the interest portion of a home loan for a fixed period of time.
Investor	When someone intends to rent out the property they purchase for investment purposes.
Lenders mortgage insurance (LMI)	An insurance the borrower pays to a lender if their LVR is over 80 per cent.
Loan-to-value ratio (LVR)	A formula used by lenders showing the percentage of the property’s value against the amount you’ve borrowed.
Mortgage broker	A home loan expert who acts as an arbitrator and negotiator between the buyer and a lender.
Offset account	A transaction or savings account attached to a mortgage in which funds deposited “offset” your loan balance. Meaning, the more funds you deposit, the lower your mortgage repayments.
Owner-occupier	When someone intends to live in the property they purchase.
Principal and interest	When you pay the cost of both the principal and interest of your home loan in your repayments.
Redraw facility	A home loan feature that allows you to draw down on equity paid into your mortgage for a range of purposes, such as renovations or a holiday.
Settlement period	A period of time between finalising the purchase and exchanging contracts before property settlement. Typically this stage can take 30 – 90 days, depending on the borrower, buyer, lenders and payment process.
Stamp duty	Also called transfer duty, stamp duty is a tax or levy charged by your state or territory when you purchase a property.
Variable rate	An interest rate type that is subject to change from the market, as influenced by the Reserve Bank of Australia cash rate.

How do I choose my first property?

There are four key steps to follow to choose your first property: choosing your suburb, your property type, inspecting the area and inspecting the property. Let’s explore this further.

Choose your suburb

First things first, you need to know where you want to buy. And whether you want to stay in the same area or move interstate, there are handy tools that may help the process of picking your dream suburb. Domain’s suburb profile tool or RealEstate.com.au’s Neighbourhoods tool can help borrowers learn more about a suburb they’re interested in. This includes demographics about the residents, market trends to gauge potential property prices, as well as local schools.

2. Choose your property type

There are a few property types to choose from, including houses, apartments and units, townhouses, villas, land, acreage, rural spaces, blocks of units and even retirement properties. This may be something you’re already sure of, but there are pros and cons with different property types. For example, if you’re looking to nab an apartment the prices may be more affordable than a home, but you’ll need to juggle smaller space and pesky Strata limitations. Or, if you’re keen on a new build, you may need to apply for a building loan as opposed to a home loan.

3. Look around the area

You’ve found your ideal suburb and are looking at a few properties. Before you get your hopes up you’ll need to look around the neighbourhood to see if it suits you. Assess the property’s distance to public transport and to your workplace (if you’re planning on living in the property). Have other houses sold recently on this street or a nearby one?

If so, what did they sell for and how long were they on the market? Are property prices in the area on the rise or decline? Are there nearby community spaces, like parks or beaches? What is the community like? What schools are nearby?

4. Professional inspections

So, you think you’ve found a house you like? Remember that just because the current owner has paid for a professional inspection doesn’t mean you don’t have to. Contact an independent professional to inspect your potential property (one that has not been recommended by the real estate agent). They will give you a realistic breakdown of existing faults with the property. Minor ones may be affordable and easily fixed, but you’ll need to weigh up whether major faults are worth paying on top of the selling price.

REDUCE TIP: Before you start shopping for your first property, make sure you have home loan pre-approval so you know how much you can borrow. This can help you search for properties realistically in your price range.

5. Buyers’ agents

If you’re feeling overwhelmed by all of the above, it may be worth reaching out to buyers’ agents. These are licensed professionals that work on behalf of buyers to find, evaluate and negotiate the purchase of property. A buyers agent may save you time and help guide you through the buying process, including the trickier aspects such as winning at the auction. You may even be given access to off-market properties.

How to get approved for a home loan

One of the best ways to find a new home loan is to research and compare your options. Reduce Home Loans can help you in your first home loan comparison journey through a range of helpful tools.

- Compare loans: Our easy-to-follow comparison table allows you to compare our range of leading, low rate loans side by side via interest rates, total fees and any features available. This can help you to find the right first home loan for your financial needs.
- Calculators: A mortgage repayment calculator can help you in your first home loan comparison by narrowing down your home loan short-list through calculating how the potential loan repayments may fit in your budget.
- Brokers. Need a little help or advice? Reduce Home Loans’ accredited Finance Managers can assist in your first home loan comparison journey.

Best rate in the market… Highly recommend their service. Easy to deal with and the best part is the instant saving on your bank account. About time we see lending rates closer to the cash rate. – Chamida

How do I choose the right home loan?

When it comes to choosing the right home loan for your financial situation and needs, the choices can be overwhelming. In fact, many homeowners stick with the same bank they’ve been with their whole lives for their mortgage because the loan process may seem too stressful. However, by not looking around and comparing your options you may be missing out on lower interest rates, fewer fees and greater flexibility.

Here are the key features of a home loan to keep in mind when choosing your best option:

1. Borrower type

There are two types of borrowers: owner-occupiers (borrowers living in the property) and investors. The type of borrower you are may have significant impact on your mortgage, including:

- The interest rate – owner-occupiers may be offered lower interest rates, generally speaking.
- Eligibility criteria – owner-occupiers and investors may have to meet differing degrees of eligibility criteria and requirements to gain loan approval, including a more thorough analysis of investors’ income and expenses.
- Interest rate repayment type – Investors may choose an interest-only repayment option over paying principal and interest as this lessens their expenses and can be helpful come tax time.
- Tax benefits – investors may be afforded taxation benefits that owner-occupiers won’t, such as negative gearing.

REDUCE TIP: Many first home buyers consider buying an investment property as their first purchase and using rental income to help service the loan. Note this may impact any first home buyer grants.

2. Interest rate

The interest rate will determine just how much you pay over the life of the loan. The lower the interest rate, the lower the mortgage repayments.

Some lenders will try to bring in new customers by offering them introductory, or ‘honeymoon’, rates, which are competitive for a period of time and generally revert to a much higher standard variable interest rate over time.

Looking carefully at the ongoing interest rate – whether fixed, variable or split – is one of the most important parts about choosing a home loan.

3. Rate type

Speaking of variable versus fixed, you’ll also need to decide on the interest rate type you want to pay.

- A variable home loan is subject to market fluctuations, as influenced by both the Reserve Bank of Australia’s cash rate and the lender itself. If rates are low, your interest rate, and therefore mortgage repayments, should be too. If rates are high, you’ll pay for it in repayments. Variable home loans can be viewed as more flexible.
- A fixed home loan, allows you to lock in an interest rate for a set period of time – typically one to five years.
- A split loan is a third option for those not sure which interest rate type is right for them. Some home loans allow you to split your mortgage and pay a portion with a variable interest rate and a portion with a fixed.

4. Mortgage fees

Another significant contributor to your overall mortgage cost are the fees you may be charged.

These can include:

- Application fees
- Valuation fees
- Settlement fees
- Monthly account keeping fees (Reduce Home Loans doesn’t charge these)
- Package fees
- Government charges
- Building and pest inspection fees

REDUCE TIP: Get your own independent building and pest inspection completed. Don’t just rely on an inspection performed by the property owner, or another buyer that has gone through this process already.

This is why it’s crucial that you look at more than just the interest rate when comparing your loan options. A low interest rate loan may not be the bargain you expected if it carries a high annual fee, for example. Factor in any upfront and ongoing fees into your mortgage repayment calculations.

4.1 Mortgage costs

You will also need to factor in other potential costs when purchasing a property, such as:

- Building and pest inspections
- Solicitor fees
- Government charges, such as stamp duty
- Lenders mortgage insurance (if deposit less than 20 per cent of property value)
- Home building and contents insurance

Reduce Home Loans General Manager, Josh Beitz, says “Don’t get stung with a ‘loyalty tax’. Customers who only bank with one provider may miss out on tens or even hundreds of thousands in savings on interest, and years off their home loan by looking at competing lenders for their first mortgage.”

First home buyers may be offered exemptions or concessions for costs such as stamp duty, depending on your state or territory. Check your state or territory’s Government Revenue website for more information.

5. Features

There are a few home loan features you may want to factor into your comparison that could unlock your mortgage’s potential.

These may include:

- An offset account – A savings or transaction account that is linked to your home loan. The funds you deposit into it “offset” your home loan balance. Meaning, if you have a $400,000 home loan, and $50,000 in your offset account, your mortgage repayments will then be based upon a $350,000 balance instead. This allows you to reduce your mortgage repayments while saving with the same lender.
- Extra repayments – Lenders do not automatically allow you to pay more than your standard mortgage repayments. This is because the more you owe, the longer you’re giving that lender money. The ability to make extra repayments without penalty is a handy feature for some homeowners looking to pay their mortgage off faster.
- A redraw facility – A feature that allows homeowners to ‘draw down’ on extra repayments made into their home loan. For example, if you pay an extra $200 a month, you’d have access to those funds if need be.
- Split rates – As mentioned above, some first home buyers may want to split their repayments between variable and fixed rates. You may want to look for a lender that offers this feature if this is important to you.

Reduce offered exactly what we were after – a highly competitive (if not the best available) rate and a simple, no frills loan product. Bryce was extremely helpful explaining our options and prompt to reply to any questions we had. The fee structure was straightforward, and the entire online process easy to navigate. – Craig Murphy

How to get approved for a home loan?

Home loan lenders need borrowers to meet eligibility criteria before they can be approved for a home loan. This helps lower the level of risk that a first home buyer may default on the home loan.

As a general rule, most lenders require the following from home loan applicants:

- Be above the age of 18
- Be an Australian resident
- Be steadily employed – lenders favour full-time employment for a minimum of 12 months. Self-employed applicants may want to consider a low doc loan, or speak to a broker for more specialist assistance.
- Earn an income above the lender’s minimum income requirements
- Have a good to excellent credit score

Being approved for a home loan will require a bit of effort and organisation of paperwork on behalf of the buyer. But it doesn’t have to be a painful process. In fact, it is becoming quicker and easier through online applications, such as Reduce Home Loan’s online application process. Before you apply for a home loan, consider looking for an online application option to speed up this process.

My partner and I went through Reduce Home Loans for our first purchase. Being our first home, we had a lot of queries. Leon Clark was incredibly helpful and patient with us. Highly recommended him plus his team! – Logan and Felicia

There are some other key factors to keep in mind that may help you get your application over the line:

Pay off your debts. Any outstanding debts will be a black mark on your loan application, from maxed-out credit cards to a HECS/HELP debt. Consider paying these off first before applying for your mortgage.

Cut out frivolous spending. Lenders will go through your bank statements with a fine-tooth comb. They do this to divide your spending into certain categories, including entertainment, to determine your borrowing potential. Meaning, if you make regular UberEats payments or are addicted to Afterpay, for example, a lender may factor this into your regular entertainment spending and subtract it from how much you may be able to borrow as a mortgage. Try to cut down on entertainment spending as much as possible at least three months before applying for a mortgage.

Don’t make too many applications. Your credit score is one of the most important factors influencing your home loan approval. An excellent credit score means you’re seen as less risky to a lender and may even mean you’re offered a better home loan interest rate. Many Australians may not realise that any applications you make will show up on your credit report. Multiple applications at once and any application rejections, will negatively impact your credit score.

How long is the home loan process?

Let’s be realistic, the traditional home loan application process can be as arduous as the buying process. You need to gather documents, pay down debts, compare your options and wait – sometimes days – just for pre-approval.

But if you can spend a little time getting prepared, it may be a lot faster than expected. And, as mentioned above, online applications are making this process even faster than ever before.

Here is an outline of the time taken to get a home loan pre-approved, approved and achieve settlement.

How to win at an auction

You’ve nabbed pre-approval from your ideal lender and you’ve found a property you’d love to own. Now comes the fun (or challenging – depending who you ask) part: winning at the auction.

Do your research

It’s incredibly important that you come armed with as much research as possible to an auction. This means knowing what similar properties have sold for in the same suburb or even on the same street. Hop online and look at prices on domain or Realeastate.com.au, as well as auction clearance rates in the area.

Not only will this help you better prepare yourself for the property going above reserve, but if you enter post-auction negotiations, you may be able to haggle for a better price.

Check out other auctions

It’s not uncommon for first-time buyers to be nervous about auctions. But the best way to shake off those nerves is to visit a few beforehand. Look online to see when nearby auctions are taking place and consider checking them out so you better understand the lay of the land.

Take note of what types of buyers are bidding and when they make their bid, as well as how the auctioneer is speaking.

Rodney McLoughlin – director of TBAS Buyers Agents Sydney

“Analysing the agents price guide and estimating a probable selling price is the key ingredient to winning at auction. Where possible, start bidding towards the end of the auction to gauge the level of interest. Know your limit and bid aggressively, bid with confidence and without hesitation, using the same increments throughout the auction, that way the competition doesn’t know when you are getting close to your limit.”

Plan your auction strategy

There are a few ways you may approach an auction, and it may be worth deciding on a strategy before the big day. Some buyers like to keep cool, calm and collected and wait until the 11th hour to place their bid. This helps them to watch how other buyers are playing their hands and avoid the bidding rush of the first half of an auction, but does require a fair bit of luck to pull off.

You may also want to take control early, whether by slowing the auctioneer’s flow by bidding at your own speed, or distracting other buyers with odd increases. The benefit of seeing a few auctions before you try to win at one is to see which style may best suit you.

Head over heart

Keep in mind that an auction is designed to play at your emotions. It’s a high-adrenalin situation, so it’s crucial that you keep a cool head if possible, and avoid bidding with your heart. This may mean ignoring your competitive side and not getting into a bidding war for a property you no longer can afford.

A good way to focus on head over heart is to set two auction budgets: your ideal spend, and your maximum spend. Write these down and keep them visible only to yourself and no one else. Aim to bid for your ideal spend to begin with, and then if you feel the auction heating up, remember your maximum budget and bid sensibly.

Common mistakes made by first home buyers

There are a few important factors to keep in mind before you apply for your first home loan or make an offer on a property. Here are some of the most common mistakes first home buyers make and how to avoid them:

Forgetting the extra costs. There’s more to the cost of getting a mortgage than the deposit. You’ll also need to factor in any potential stamp duty costs, lenders mortgage insurance, solicitor and conveyancing costs, home inspections and insurances.
Taking on too much debt. If your home loan repayments exceed 30 per cent of your income you’re generally considered to be in “mortgage stress”. Try to avoid taking on too much debt, as you never know when your circumstances may change or interest rates may increase.
Expensive suburbs. It’s called a property ladder for a reason: you’re meant to climb it. Try to avoid purchasing property in the most expensive suburb for your first property if the repayments will put you into considerable financial stress. Consider looking at “bridesmaids” suburbs first – up-and-coming suburbs adjacent to your dream area.
Not exploring their area. What is the distance to public transport? How far is it to your workplace? What are the property values of the neighbouring houses and apartments? Are they on the rise or decline? If you have, or are planning on starting a family, is it close to good schools? Are there green spaces nearby? All of this should be factored into your first home decision. While you may not be able to tick every box the first time around, you’ll want to tick at least a few.
Heart over head. You don’t want your emotions to drive the sale – even if you love the property. First time buyers need to keep a level head throughout the whole home buying application. Plus, if an agent or the owner suspects this, they may have more bargaining power in the sale.

Getting the wrong advice. This could be from family members, existing family advisors, solicitors or accountants. Choose the advice you follow very carefully and consider leaning more from experts, such as buyers’ agents or real estate agents before choosing a property.

REDUCE TIP: Do your own research and speak to your own experts. every buyer’s process of purchasing property is different and one individual’s personal experience may not be applicable to yours.

Dealing with Leon was such a pleasure. I’m a 25 year old first homebuyer and I wasn’t too understanding of the world of property purchasing. It’s good to know that I’m getting one of the lowest interest rates in the country.

I was a bit nervous throughout the whole property purchase dealing with the sales agent, solicitors and contracts; but Leon was very responsive in getting back to me and very helpful with all my questions. – Greg

All about Lender’s Mortgage Insurance

First home buyers can often be shocked to learn that there’s more than just the deposit to pay for when you get a home loan. On top of upfront stamp duty costs, as well as legal fees and insurances, you may also need to pay lenders mortgage insurance.

Lenders mortgage insurance (LMI) is an insurance paid to a lender when a first home buyer does not have a deposit of 20 per cent or more. This is because having a smaller deposit is seen as a risk to the lender and they need to insure themselves against this greater risk that you may default on the loan.

If your LVR is above 80 per cent, (meaning your home loan is more than 80 per cent of the value of your property), you will be eligible to pay this cost. This is an insurance that the lender will organise themselves, not the borrower.

For example, a first time buyer has saved $50,000 and has been approved for a $500,000 30-year owner-occupier home loan. As this is only a 10 per cent deposit, their LVR is calculated as being 90 per cent, meaning they’re eligible to pay LMI to the lender. According to the Genworth LMI Calculator, their Upfront LMI premium (including GST) is $ 8,679.89.

Many lenders allow borrowers to tack this cost to the end of their mortgage, saving them the pressure of having to pay for LMI up front. However, this generally will lead to you paying more in interest charges over the life of the loan, as adding LMI to your mortgage increases the amount of principal you’ll need to pay.

Ultimately, to avoid paying LMI, you’ll need to consider saving up a deposit of at least 20 per cent (which means a LVR of 80%). Otherwise, you may need to budget for adding this cost to your mortgage and repaying more in interest over the life of the loan.

We used Reduce Home Loans for our first home. The process was super easy, stress free and professional. We were also given extensive information that made the whole process simple and straightforward. Rhyse was really attentive at answering questions and his years of experience and knowledge raised points we hadn’t yet considered. – Ashleigh

How do I pay off my home loan early

Okay, you got the home loan and the first property, now what?

While most mortgage terms range from 25-30 years, most of us don’t want to be saddled with great big debts looming overhead for decades. Now may be the time to consider making a plan to pay off your mortgage faster than expected.

Here are some of the most common ways homeowners can try to pay off their mortgages early:

Make extra repayments

Does your home loan allow you to make extra repayments without penalty? This is one of the easiest ways to chip away at your overall balance and shave years off of your loan. Whether in a lump sum, or in ongoing repayments, making additional payments on your mortgage may help you ditch the debt faster than your loan term.

REDUCE TIP: Keep your repayments low by utilising home loan features like an offset account or redraw facility. If you have any additional savings you may put these in your offset account and if you make extra repayments, these will go into your redraw facility. Both features can help to reduce your ongoing repayments, but a redraw facility has the added benefit of allowing you to dip into your extra repayments as needed.

Avoid interest-only

While making interest-only payments can be tempting due to the lower repayment amounts, you’re not actually chipping away at your principal. If you’re looking to pay off your mortgage early, considering sticking to principal and interest repayments.

Pay down your other debts

Interest rates may be low at the moment, but they will rise again one day. And without a crystal ball, it’s hard to know exactly when. If you have other outstanding debts, such as credit cards or a car loan, it may be worth getting on top of these as quickly as possible. This way, when interest rates do rise again, you can prioritise more of your budget towards your mortgage than other debts and keep fast-tracking your loan repayments.

First Home Buyer FAQs

How much money can I borrow?

The amount of money you can borrow will depend on your personal financial circumstances, including your income and expenses, as well as your genuine savings and the deposit saved. A Borrowing Power Calculator may help give some indication of how much you can borrow.

What am I eligible for as a first home buyer?

The type of home loan you may be eligible for depends on the personal financial situation of those applying for the loan, the size of the deposit saved, whether you intend to rent out or live in the property and the type of loan you want.

Is stamp duty waived for first home buyers?

Yes, in some states and territories there may be stamp duty exemptions or concessions. This is typically based on the value of the land or dwelling purchased and differs across each state or territory. A Stamp Duty Calculator can help you prepare for how much you will pay for your property purchase.

How much deposit do first home buyers need?

The amount of deposit you need to save depends on the value of the property you want to purchase. Experts recommend saving at least a 20 per cent deposit to help avoid paying costly lender’s mortgage insurance. 5-10 per cent is also acceptable but may mean a higher interest rate.

How do I apply for a home loan?

You can apply for a home loan online here – https://www.reduceloans.com.au/.

How often do I make home loan repayments?

You may be able to choose from weekly, fortnightly or monthly mortgage repayments. This depends on your personal preference and budget.

Do I need a solicitor or a conveyancer?

Generally speaking, it is recommended you use a solicitor or conveyancer in your purchasing journey. This aids in the settlement process and the legal side of purchasing a property.

Can I get a first home buyers grant if my partner is not a first home buyer?

Unfortunately, if one applicant on a home loan is not a first home buyer, you may not qualify for First Home Owner Grants and other government assistance. Check with your state or territories’ Department of Revenue for more information. .

Which is the best loan for me?

There is no one best home loan for every Australian. To find your best home loan option you’ll need to do your research and compare your options across the market. Comparison websites can be very helpful in this regard.

Am I eligible for the first home owner grant?

First home owner grants and their eligibility criteria differ across each state and territory. For more information please visit your state or territory’s Government Revenue website.

How do you calculate interest repayments?

Mortgage Calculators can help you to calculate your interest repayments on a home loan. Consider using Reduce Home Loan’s Mortgage Repayment Calculator for more insight.

How long does pre-approval last for?

Depending on the lender, a borrower’s financial situation and the property market, pre-approval may last from three to six months.

Happy Reduce Home Loans First Home Buyers

Read below and see more on Product Review

Nick Freney was brilliant to deal with and always made me feel like a highly valued customer, responding to my questions in a timely manner and demonstrating a great deal of empathy and patience. This was the best rate/product in the market and I was blown away by the amazing service – thanks Nick!

– Sharmila

It was an easy application process and there were no extra costs. This was the lowest interest rate we could find, so far no problems with Internet banking, their customer service responded quickly to queries.

– StaceJ

Easy application process, great customer support and the best variable interest rate in the market. Communication and feedback during the application was prompt and helpful, and absolutely no issues with the product provided.

– Tim

Reduce has the lowest interest rates and it was a quick process to get approved! Good communication. It was a very smooth process. Would do it again if I had to!

– Scubaannie

I have had a good experience with Reduce Home Loans, I am happy with their rates when compared to other lenders out there. Everything I was told came to be and the customer service was excellent. I would recommend them to anyone looking to obtain finance. Give them a call..!

– Steve