What are the available home loans for first time buyers in Australia? Here is everything you need to know to climb into the property ladder
With skyrocketing home prices, homeownership remains a dream for many Australians. But you do not have to be a millionaire to buy a home—there are options available, even for first-time home buyers.
For those who are eligible, there are government-backed schemes available to help you climb onto the property ladder sooner than you’d think. There are also ways to purchase your first property with a low deposit—or even, in some cases, no deposit.
When deciding your first move on your way to homeownership, it is important to know what you are looking for and what schemes you may be eligible for. Here is everything you need to know about home loans for first-time buyers in Australia.
Can I buy a house with a $10,000 deposit?
Yes. You can buy a house with a $10,000 deposit in Australia. It is, however, important to note that the minimum amount you can put down as a deposit will depend on your mortgage lender. In other words, not all lenders will accept a $10,000 deposit.
Some lenders in Australia will let you make a low deposit if you pay a one-time fee, which acts as security and indicates to the lending company that you are a responsible borrower and are serious about owning the property.
More commonly, most Australian banks and lenders will only give home loans to those with solid qualifications and a deposit of roughly 10% to 20% of the purchase price of the property. Since the value of properties in Australia have skyrocketed in the past 10 years, most buyers can’t afford to wait to save 10%-20% of the property’s value.
It is important to ensure that you are ready to buy a house in the first place before considering making a $10,000 deposit. The reason it is important to be sure is that, ultimately, you will have more than the deposit to think about. The mortgage application process also includes the home closing process, which is when additional costs and fees typically arise. If possible, it is wise to have emergency savings or rainy-day funds for the purchase.
Remember: while purchasing a property with a $10,000 deposit is possible, it often means you must pay a fee plus more in repayments every month. If you want to get an estimate on the repayment amount on a $10,000 deposit, you can use our free online mortgage calculator.
How does the 5% deposit scheme work?
The 5% deposit scheme is also known as the home guarantee scheme (HGS). For this government scheme, eligible home buyers can buy or build a new home with a deposit of as little as 5% of the purchase price of the property. For eligible single parents, that percentage can be as low as 2%—without needing lenders’ mortgage insurance.
This Australian Government initiative, which is administered by the National Housing Finance and Investment Corporation (NHFIC), includes the following:
- First home buyer guarantee (FHBG). This supports eligible first-time home buyers to purchase their property sooner, with a deposit of as little as 5%. Each financial year, there are 35,000 places available.
- Regional first home buyer guarantee (RFHBG). The RFHBG supports eligible regional first home buyers to purchase a property in a specific regional area. Between Oct. 1, 2022, and June 30, 2025, 10,000 places are slated to be available every financial year.
- Family home guarantee (FHG). The family home guarantee supports eligible parents with at least one dependent child to purchase a property with a deposit of as little as 2%. Every financial year until June 30, 2025, there are 5,000 places available.
Under the 5% deposit scheme, or the home guarantee scheme (HGS), a portion of the eligible home buyer’s home loan (from a Participating Lender) is guaranteed by the National Housing Finance and Investment Corporation. Through the scheme, eligible buyers can buy a property with a deposit of as little as 2% and 5% without having to pay lenders private mortgage insurance.
NHFIC's Annual Report is now available on the website. Find out more https://t.co/AXzIN5Oo3r pic.twitter.com/V217UB67hQ— NHFIC (@NHFIC_AUS) October 27, 2022
Home loans for first time buyers: Other options
While we have focused on the HGS, there are other government-backed options available for first-time buyers in Australia. Here is a quick look at some other options that may be available to you:
- First home buyer assistance scheme
- First home owner (new homes) grant
- Shared equity home buyer helper
- First home buyer choice
- First home super saver scheme
Let’s take a closer look at each to give you a better idea of how they work and how you can be eligible.
1. First home buyer assistance scheme
The first home buyer assistance scheme enables eligible first-time buyers to pay less or no transfer duty on their first property. This benefit does, however, depend on the value of the purchase. The first home buyer assistance scheme also includes:
- Purchasing an existing property
- Purchasing a new property
- Purchasing vacant land that you want to build on
2. First home owner (new homes) grant
The first home owner (new homes) grant is for any eligible buyer purchasing their first property that is any of the following:
- Newly built
- Off the plan
- Substantially renovated
- Vacant land to be built on
Depending on the value of the purchase, you may be eligible for a $10,000 grant to help.
3. Shared equity home buyer helper
The shared equity home buyer helper scheme helps eligible buyers purchase their own property with a deposit as little as 2%. In exchange for an equal interest in the property, the New South Wales Government contributes a portion of the purchase price.
The shared equity home buyer helper scheme is open to the following:
- Single parents of a dependent child or children
- Single people aged 50 years or older
- First-time home buyers who are nurses, midwives, early childhood educators, police officers, paramedics, or teachers
4. First home buyer choice
For the first home buyer choice scheme, eligible first-time buyers can lower their upfront costs by opting to pay an annual property tax rather than stamp duty for homes up to $1.5 million.
5. First home super save scheme
The first home super save scheme allows you to utilize your superannuation fund to save for your property, which can also carry with it tax benefits. To apply for this scheme, you can use up to $15,000 of your voluntary contributions from any financial year (as high as $50,000 total).
Do first home buyers get a cheaper interest rate?
Some lenders in Australia will offer discounted interest rates and sign-up incentives for certain first home buyers. However, most first home buyers will usually have access to similar interest rates as existing homeowners, whether they are purchasing a residential property or an investment property.
How to buy a house in Australia with no deposit?
If you meet certain conditions—like having a guarantor on the loan, for example—you can buy a house in Australia with no deposit. However, not all lenders will approve a loan for 100% of the purchase price of the property, and it is determined on a case-by-case basis by each lender.
While it is possible to buy a house in Australia with no deposit, it is usually not that common for lenders to offer mortgage loans that have no requirement for a deposit. More commonly, some lenders might offer minimum deposit home loans with a loan-to-value (LTV) of 95%—if you have a reliable source of income and meet other criteria like having a good credit score. In this instance, you will still have to make a deposit of at least 5% of the purchase price of the property and may still need to pay for lenders mortgage insurance (LMI).
Even if you buy a house with no deposit, you will still need to keep in mind other expenses, such as stamp duty (depending on which state or territory you are in), legal fees, building inspections, and other costs.
Lending criteria for no deposit
If you want to secure a home loan with no deposit, you are likely to face much stricter lending criteria. The reason for this is the level of risk the lender must assume in this situation. The following is a list of the lending criteria for no-deposit home loans:
- High credit score. Generally, you must have a high credit score with one of the major credit reporting agencies, either Equifax, Experian, or Illion
- Solid repayment history. You will also have to prove that you have a history of repaying all of your debts on time, like rent, personal loans, and credit cards
- Steady employment income. You will also have to prove that you have a stable job that provides you with an income that is high enough that you will be able to repay the loan
As we have seen, there are options available for home loans for first-time buyers. One option is to make a low deposit, while another is to make no deposit at all. Whether you can secure a home loan with zero deposit will depend on strict lending criteria; and whether it is advisable in the long run is another matter which will require research to ensure it is the right fit for you.
Not only are low or no deposit options available, but there are also government-backed schemes open to first-time buyers in Australia. Before committing, make sure you do your research to see what you may be eligible for. For questions, talk to one of the best mortgage lenders in your area using our resources.
Have experience with home loans for first-time buyers? Let us know about your experiences in the comment section below.