Compare first home buyer interest rates

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.

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.  

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.

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.

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.

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. Sign on the dotted line: If everything checks out, you can officially sign up for a mortgage and become a homeowner!

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.

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.