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Compare first home buyer interest rates

What’s the best home loan for a first time home buyer? Every first home buyer is different, and may need a different type of mortgage. Compare first home loan options from a variety of providers and find one that suits your needs.

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Mark Bristow

Updated on

22 Dec, 2024

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What to know about first home loans

Your first mortgage is the first home loan you’re successfully approved for, whether you’re buying your principal place of residence or an investment property. You'll usually need to be an Australian citizen or permanent resident to successfully apply for your first mortgage.

While this first mortgage should be affordable and suited to your needs, first home buyers may not always be able to get the lowest interest rates or the most flexible features. This may be because young Australian first home buyers may not have a long enough credit history to have an excellent credit score, which lenders look favourably on when deciding your interest rate. Plus, while having a deposit of at least 20% may present you as a less risky borrower to a lender, it's harder for a first-time buyer to save up this amount – especially in capital cities like Sydney or Melbourne where property prices can be high.

Once you’ve taken some time to pay your mortgage and build up some equity in your new home, you may have the option to refinance and get a home loan that better suits your needs. But for now, many would-be buyers may just feel proud to get a foot on the property ladder with their first home loan.

How do you buy your first home?

There are two main methods for buying property – at auction, and via private treaty.

Auctions are typically public events, where potential buyers bid to purchase a property from a vendor. When the auctioneer’s hammer falls, the highest bidder gets to purchase the property. Even if the bidding doesn’t reach the vendor’s minimum selling price (the ‘reserve’), the highest bidder gets to exclusively negotiate with the vendor.

Auctions can be fast-paced and exciting, but sometimes stressful. Remember that if you’re the highest bidder at an auction, the deal is final – there’s no cooling-off period, and you’ll need to pay a deposit on the property (often 10% of the price) right then and there.

Other auction tips include:

Check the contract before you register to bid - a solicitor may be able to help you find any issues.
Keep your maximum budget in mind when bidding.
Find out if the vendors prefer cheques, bank transfers, or other options for the deposit, so you can be prepared in case your bid is the winner.
Make sure your first mortgage is pre-approved and ready to go.

A private treaty is a negotiation between a buyer and a vendor to purchase the vendor’s property. Private treaties are often organised through real estate agents, with mortgage brokers, solicitors and/or conveyancers often also brought in to help with the paperwork.

As the potential buyer, you present your offer to the real estate agent, who takes it to the seller. The seller may negotiate with you via the agent to work out a final price and any other terms and conditions. Once everything is agreed, contracts can be exchanged and signed, deposits paid, and cooling-off periods can begin.

Buying your first home via private treaty may take longer than buying at auction, and you risk being ‘gazumped’ by other interested buyers that may also be negotiating with the vendor behind the scenes. However, you may also be able to make a conditional offer while you’re still getting your home loan finalised, and you may have the option to back out of the deal by exercising a cooling-off period in the contract.

How much can you afford to borrow for your first home loan?

To work out if you can afford your first home loan, RateCity's Borrowing Power Calculator can estimate how large a loan a lender may approve for you, based on your income and expenses.

Simply provide some general information that lenders commonly ask for as part of a mortgage application, and the calculator can help determine a loan size range you could qualify for, from low to moderate to high.

You may also want to look at a Mortgage Repayment Calculator to estimate how much a home loan could cost you per week, fortnight, or month. Try adjusting the borrowing amount, loan term and other factors to see how the changing repayments would affect your household budget.

It’s important to work out if your first home buyer loan could put your finances under stress, as a change in circumstances could leave you unable to afford your repayments. If a home loan may put you at risk of mortgage stress, a lender may decline your application.

Lenders calculate mortgage stress in different ways. One common benchmark is that you may be in mortgage stress if more than one third of your household's income goes towards home loan repayments. You can use our mortgage stress calculator to estimate your own risk.

How much do you need to save for a deposit?

Before you can buy your first property, you’ll need to pay a percentage of its value upfront as a deposit to secure your first home buyer loan. The more you can afford to pay as your deposit, the more comfortable the lender may feel about lending you the rest of the money you need. This may let you enjoy lower interest rates or fees, or extra home loan features and benefits.

Most lenders prefer that you pay a home loan deposit of at least 20% of the property’s value. That can be a lot of money, especially if you’re buying your first property in one of Australia’s capital cities. It may take years of dedicated saving to get a 20% deposit together, and property purchase prices may rise even higher during this time!

Some lenders will let you apply for a home loan with a smaller deposit of 10% or even 5% of the property’s value. However, this means the lender will need to take out a Lenders Mortgage Insurance (LMI) policy to cover the risk that you’ll default on your loan. LMI protects the bank, not the borrower, and most lenders pass the cost of LMI on to you.

The lower your deposit, the more the LMI may cost, which can reach tens of thousands of dollars. Our LMI Calculator can help you plan your budget in advance and work out if borrowing with a low deposit may be the best option for your situation.

Home loan calculator

Can you build your first home?

Sometimes it’s more affordable to buy a vacant block of land to build a house, or to buy a unit or townhouse off the plan, than to buy an established property as your first home.

Borrowing money to build a home may require a specialist mortgage, such as a construction loan. Construction loans differ from standard home loans in that the entire loan amount is not released as one lump sum. Instead, you receive the funds in stages, as your home’s construction or renovation progresses.

The main advantage of a construction loan is that you only need to make interest-only repayments, and only on the money that has been drawn down so far. This can make the initial repayments more affordable than a typical home loan, minimising your expenses during the build. Once the construction process is complete, the loan generally reverts to a traditional home loan with ongoing principal and interest repayments.

Keep in mind that because the lender will have an interest in your project, most construction loans will require qualified builders, project managers and other tradespeople to complete the work, so you may not be able to do it yourself as an owner-builder unless you hold the necessary qualifications. Additionally, the lender may require additional inspections and valuations as the project progresses, which could slow down the pace of construction.

The process of buying a property off the plan is also different to getting a first home buyer loan to purchase an established property. In many cases, you’ll pay a 10% deposit upfront, with the rest of the purchase price to be paid upon completion of the project. You may be able to organise home loan pre-approval with a bank or mortgage lender in advance, or apply for a home loan as construction approaches completion. In either case, the lender will need to conduct a valuation of the property to ensure it can fulfil your mortgage’s loan to value ratio (LVR) requirements.

Just remember that if the property’s valuation comes back lower than expected, such as if there’s an oversupply in the area, you may need to apply for LMI or get help from a guarantor. There’s also the risk that the builder could go out of business, or natural disasters or other unforeseen circumstances could stall or cancel the project.

If you choose to build your first home, you may be eligible for extra government support, on top of the usual First Home Owner Grant (FHOG) in your state or territory. For example, the Home Guarantee Scheme is a government scheme that may help support you to build a new home with a deposit of as little as 5%.

What is the best first home loan?

As everyone’s financial situation is different, the best first home buyer loan for you may not be the best option for the next borrower. It’s important to compare different home loans and look at all the factors in play, including the:

Interest rate: The lower the rate, the lower your mortgage repayments. Some banks offer special discounted interest rates for first home buyers, but once this introductory “honeymoon” period ends, you’ll revert to a higher rate, which could put pressure on your budget.
Fees: Home loans may charge annual fees each year, and also charge fees for using certain loan features.
Comparison rate: Combines a loan’s interest rate with its standard fees and charges. This can give you a better idea of its overall cost, as a mortgage with a low rate but high fees may actually cost more in total.

It's also worth comparing the features and benefits of different home loans, to work out which ones may offer extra value and help you better manage your repayments.

Some popular home loan features and benefits include:

Extra repayments: Pay off your loan faster, so you can be charged less interest.
Redraw facility: Take extra repayments back out of your loan if you need cash.
Offset account: A separate savings or transaction account linked to your home loan, included when calculating your interest charges to help you save some money. For example, if you have a $350,000 mortgage and $10,000 in your offset account, you’ll be charged interest as if you only owed $340,000.
Loan portability: Allows you to transfer your loan to another property if you decide to move house or invest elsewhere. This could save you the cost and hassle of closing one loan and applying for another.
Interest-only option: Lets you only pay the interest on your loan for a set period, which could help to relieve some financial pressure from your household budget or better manage the cash flow from a property investment.
Bundled deals or packages: Some lenders offer discounts on package deals when you bundle your home loan with other banking products, such as credit cards and savings accounts.

One quick way to help you get a better idea of a home loan’s overall value is to compare Real Time Ratings™. Based on a home loan’s cost (e.g. interest rates and fees) as well as its flexibility (e.g. access to extra repayments, offset, redraw etc.), these star ratings are calculated as you use the site, making them as up to date as possible. Comparing Real Time Ratings™ may help you find top-rated mortgage offers to add to your shortlist of potential first home loans.

Can you qualify for a home loan if your deposit is a gift?

Generous friends or family may offer to help you with your home loan deposit. However, many lenders will want your deposit to be made up of “genuine savings” – income earned from your job saved in an account over time – to show that you’re a financially responsible borrower.

If part of or all of your deposit will be a gift, consider holding the money in a savings account for six months or longer to demonstrate your financial discipline, or organise a formal plan to pay back the gifted money in the future. Contact your lender to learn more about their exact requirements.

What other upfront costs are involved when buying property?

As well as budgeting for your first home loan’s deposit and LMI charges, there are other upfront costs you may need to consider, such as:

Stamp duty (or transfer duty): A state or territory government tax on the sale of land. As a first home buyer, you may qualify for a duty exemption or discount on stamp duty. Our stamp duty calculator can help you estimate the cost.
Conveyancing fees: Paid to a solicitor to manage the legal transfer of a property’s ownership.
Application fees: Paid to the lender to cover the admin cost of processing your home loan application and setting up your mortgage.
Valuation fee: Hiring a valuer to confirm the value of the property you’re buying as part of the home loan application process. Often organised by the lender, so you often pay the fee directly to them.

How the government helps: first home owner grants (FHOG), schemes, and other concessions

How do you apply for a mortgage as a first-time buyer?

Save your deposit: The more you can pay as a deposit on your home loan, the more home loan options may become available to you.
Look into first homeowner grants (FHOGs), incentives, and the like: Depending on your situation, you may be eligible for support when buying your first home.
Work out if you’ll need LMI or a guarantor: If you have less than a 20% deposit, you may need to budget extra for LMI, or get a family member to guarantee your home loan.
Consider contacting a broker: A mortgage expert may be able to help you on every step of your home loan journey, and help you access options you may not have been aware of.
Get your documents together: You’ll likely need proof of your identity and residency, proof of income, and details of any credit cards or other outstanding loans.
Apply for pre-approval: If you haven’t found a property yet, this means that when you, do you can quickly complete the financing process.
Get unconditional approval: Once you’ve found a property to buy, the lender will organise a valuation and confirm your application’s details before they can approve your home loan.
Sign on the dotted line: If everything checks out, you can officially sign up for a mortgage and become a homeowner!

What is the difference between a first mortgage and second mortgage?

Most first home buyer loans are like other standard home loans, though some banks and mortgage lenders offer home loan deals specifically for first time home buyers. These mortgages may offer useful features and benefits for first time buyers, such as discounted introductory rates (aka “honeymoon rates”), or the option to borrow with a lower deposit (though you’ll likely need to also pay for LMI). Their eligibility requirements may also be easier for first time home buyers to fulfil.

If you take out your second mortgage because you’re refinancing your first home loan, or have sold your first property to move to a new home, the process is broadly similar to when you applied for your first home loan:

Work out what you can afford;
Compare mortgage options from different lenders, and;
Choose both a home loan you can comfortably afford, with useful features and benefits.

Taking out a second mortgage to buy a second property as an investment may be more complex. Investment mortgages are typically structured differently to owner occupier home loans, and may charge higher interest rates. You may be able to use the equity in your first property to apply for your second mortgage, though there are risks involved in this strategy. Consider contacting a mortgage broker for personalised advice.

How do you get help with your first mortgage?

Finding, applying, and paying for your first home loan can sound intimidating, but you don’t have to go it alone.

You may be able to get help from the following sources:

Mortgage brokers

If you’re not sure which bank offers the best first home loan deal for you, you could consider getting in touch with a mortgage broker.

These home loan experts can:

Recommend specific home loans based on your financial situation
Negotiate with banks on your behalf to help you secure better deals
Tell you about special mortgage offers that aren’t typically advertised
Manage much of the paperwork for you

Using a mortgage broker to apply for mortgage pre-approval is usually free, as the broker is paid a commission by the bank or lender if the loan application is successful.

Conveyancers

Solicitors, lawyers and other legal specialists can (for a fee) manage the process of transferring the title of your first property from the seller to the buyer. Both the buyer and the seller will often hire a conveyancer to help handle a property sale.

Because property sale contracts can be complex and may include special terms and conditions depending on your state or territory, a conveyancer can help minimise your risk of legal problems when buying your first home.

Guarantors

If you’re struggling to save a home loan deposit, or if you’d like a home loan with no deposit, you may be able to get help from a guarantor. This is a close family member (usually a parent or grandparent) that uses the value of their own property to guarantee part or all of your home loan deposit. But if you default on your home loan, your guarantor will become responsible for your mortgage payments.

Becoming a guarantor is a big commitment, so it’s important for everyone involved to know the risks. However, once you’ve spent some time paying off your mortgage, you may be able to refinance your loan and release your guarantor.

Home Guarantee Scheme

First introduced in 2020 as the First Home Loan Deposit Scheme (FHLDS), this Australian government initiative allows you to apply for a mortgage from selected lenders with a deposit as low as 5% (or even 2% for single parents), with the government guaranteeing the rest so you don’t need to pay LMI.

A limited number of spots are available in the scheme each financial year, and to be eligible your income must be under the maximum threshold ($125,000 per annum for singles, or $200,000 per annum for couples). The property you’re purchasing may also need to fulfil eligibility criteria. Plus, a limited number of lenders participate in the scheme, so you may not be able to apply with your preferred bank.

Special offers

Lenders regularly include special deals and incentives with their mortgages to help attract new home loan customers.

You may be offered:

Discounted interest rates for a limited time (sometimes called “honeymoon rates”)
Waived fees
Bundled credit cards or other financial products
Discounted or waived LMI fees
Cashback

Keep in mind that you’ll need to fulfil the lender’s eligibility criteria for its special offers. While some incentives are meant for first home buyers, many others are intended for refinancers or investors. Be sure to read the terms and conditions before you apply.

Mark Bristow

Personal Finance Editor

Mark Bristow is RateCity's Home & Personal Finances Editor, and an experienced analyst, researcher, and producer. While primarily focused on Australian mortgage and home loan expertise, he has experience across energy, home and travel insurances. Mark has been a journalist and writer in the financial space for over ten years, previously researching and writing commercial real estate at CoreLogic. In the years since, Mark has worked for the Winning Group, Expedia, and has seen articles published at Lifehacker and Business Insider.

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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What to know about first home loans

How do you buy your first home?

There are two main methods for buying property – at auction, and via private treaty.

Other auction tips include:

Check the contract before you register to bid - a solicitor may be able to help you find any issues.
Keep your maximum budget in mind when bidding.
Find out if the vendors prefer cheques, bank transfers, or other options for the deposit, so you can be prepared in case your bid is the winner.
Make sure your first mortgage is pre-approved and ready to go.

What is the best first home loan?

Interest rate: The lower the rate, the lower your mortgage repayments. Some banks offer special discounted interest rates for first home buyers, but once this introductory “honeymoon” period ends, you’ll revert to a higher rate, which could put pressure on your budget.
Fees: Home loans may charge annual fees each year, and also charge fees for using certain loan features.
Comparison rate: Combines a loan’s interest rate with its standard fees and charges. This can give you a better idea of its overall cost, as a mortgage with a low rate but high fees may actually cost more in total.

It's also worth comparing the features and benefits of different home loans, to work out which ones may offer extra value and help you better manage your repayments.

Some popular home loan features and benefits include:

Extra repayments: Pay off your loan faster, so you can be charged less interest.
Redraw facility: Take extra repayments back out of your loan if you need cash.
Offset account: A separate savings or transaction account linked to your home loan, included when calculating your interest charges to help you save some money. For example, if you have a $350,000 mortgage and $10,000 in your offset account, you’ll be charged interest as if you only owed $340,000.
Loan portability: Allows you to transfer your loan to another property if you decide to move house or invest elsewhere. This could save you the cost and hassle of closing one loan and applying for another.
Interest-only option: Lets you only pay the interest on your loan for a set period, which could help to relieve some financial pressure from your household budget or better manage the cash flow from a property investment.
Bundled deals or packages: Some lenders offer discounts on package deals when you bundle your home loan with other banking products, such as credit cards and savings accounts.

How do you apply for a mortgage as a first-time buyer?

Save your deposit: The more you can pay as a deposit on your home loan, the more home loan options may become available to you.
Look into first homeowner grants (FHOGs), incentives, and the like: Depending on your situation, you may be eligible for support when buying your first home.
Work out if you’ll need LMI or a guarantor: If you have less than a 20% deposit, you may need to budget extra for LMI, or get a family member to guarantee your home loan.
Consider contacting a broker: A mortgage expert may be able to help you on every step of your home loan journey, and help you access options you may not have been aware of.
Get your documents together: You’ll likely need proof of your identity and residency, proof of income, and details of any credit cards or other outstanding loans.
Apply for pre-approval: If you haven’t found a property yet, this means that when you, do you can quickly complete the financing process.
Get unconditional approval: Once you’ve found a property to buy, the lender will organise a valuation and confirm your application’s details before they can approve your home loan.
Sign on the dotted line: If everything checks out, you can officially sign up for a mortgage and become a homeowner!

How do you get help with your first mortgage?

Finding, applying, and paying for your first home loan can sound intimidating, but you don’t have to go it alone.

You may be able to get help from the following sources:

Mortgage brokers

If you’re not sure which bank offers the best first home loan deal for you, you could consider getting in touch with a mortgage broker.

These home loan experts can:

Recommend specific home loans based on your financial situation
Negotiate with banks on your behalf to help you secure better deals
Tell you about special mortgage offers that aren’t typically advertised
Manage much of the paperwork for you

Using a mortgage broker to apply for mortgage pre-approval is usually free, as the broker is paid a commission by the bank or lender if the loan application is successful.

Conveyancers

Guarantors

Home Guarantee Scheme

Special offers

Lenders regularly include special deals and incentives with their mortgages to help attract new home loan customers.

You may be offered:

Discounted interest rates for a limited time (sometimes called “honeymoon rates”)
Waived fees
Bundled credit cards or other financial products
Discounted or waived LMI fees
Cashback

Compare first home buyer interest rates

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What to know about first home loans

How do you buy your first home?

How much can you afford to borrow for your first home loan?