How to buy your first home in Australia

Twenty per cent of the purchase price is the figure lenders treat as the point at which no mortgage insurance is required. Below that, the loan-to-value ratio is high enough that the lender wants protection, and it buys that protection with your money.

Lenders mortgage insurance is the most misunderstood cost in the whole process. It is an insurance policy that covers the lender if you default and the sale of the property does not clear the debt. You pay the premium; you get no cover. If you default, the insurer pays the lender and can then pursue you for the shortfall.

The premium is not linear. It rises steeply as the deposit shrinks, so the difference between a fifteen per cent and a ten per cent deposit is much larger than the five percentage points suggests. Most lenders let you capitalise the premium into the loan, which removes it as an upfront cash problem and converts it into decades of interest on top of the premium itself.

Lenders also apply a 'genuine savings' test to smaller deposits, typically wanting to see a portion of the deposit accumulated over several months rather than appearing as a lump sum. A gift from family is usually acceptable but often needs a statutory declaration confirming it is not a loan, because a loan changes your serviceability.

A guarantor arrangement — usually a parent offering equity in their own home as additional security — can remove the mortgage insurance requirement entirely. It is genuinely useful and genuinely risky: the guarantor's property is exposed if you default, and the arrangement can be difficult to unwind before the loan-to-value ratio improves. Moneysmart is clear that going guarantor makes a person liable for a debt they do not control.

The First Home Super Saver Scheme lets eligible first buyers make voluntary contributions into superannuation and later withdraw them, plus deemed earnings, towards a deposit — using super's concessional tax treatment to save faster. Caps and eligibility conditions are specific and the money is otherwise locked away, so read the ATO's rules before contributing rather than after.

Stamp duty — transfer duty — is the largest of these in most states. It is a percentage of the purchase price on a sliding scale, and it is payable in cash around settlement rather than being financed. Every state and territory offers some form of first home buyer concession or exemption, but the price caps and conditions vary enormously, and in expensive markets a property can sit above the cap and attract full duty.

Conveyancing is the legal transfer work: reviewing the contract, ordering searches, handling the settlement. A conveyancer or solicitor charges a professional fee plus disbursements for the searches themselves. Do not skip a proper contract review to save a few hundred dollars — the contract is where the risk lives.

Building and pest inspections are the cheapest insurance in the transaction. A competent inspector finds structural movement, termite activity, illegal or unapproved works and drainage problems that will cost multiples of the inspection fee. For apartments, the equivalent is a strata search: the records show the sinking fund balance, any special levies coming, and whether the building has a defect dispute running.

Lender fees include application or establishment fees, valuation fees and settlement fees, and some lenders charge ongoing annual package fees. Compare the comparison rate rather than the headline rate, because the comparison rate is required to fold most of these in.

Adjustments at settlement catch people out. Council rates, water rates and, for apartments, strata levies are usually paid in advance by the seller, so you reimburse them for the portion of the period after settlement. It is not a large amount but it is unbudgeted cash on the day.

Then there is everything after: connection fees for electricity, gas, water and internet, removalists, and the repairs and furniture that a first home invariably needs. Budgeting nothing for the first six months of ownership is the fastest route to putting the shortfall on a credit card at a much higher rate than the mortgage.

There are four separate things, and confusing them is normal because they have similar names and different owners.

The First Home Owner Grant is a cash grant administered by each state and territory revenue office. In most jurisdictions it is now restricted to newly built or substantially renovated homes, with a price cap, and it is not available for established properties. The national portal at firsthome.gov.au points to each state's scheme; the state revenue office is the authority on eligibility.

Stamp duty concessions and exemptions for first buyers are also state-run, and separate from the grant. Several states offer a full exemption below one price threshold and a sliding concession above it. In some states this is worth considerably more than the grant, and it applies to established homes where the grant does not.

The Home Guarantee Scheme is federal, administered through Housing Australia. The government guarantees a portion of an eligible buyer's loan so the lender does not require lenders mortgage insurance, which means a much smaller deposit without the premium. There are separate streams, including one for single parents and one for buyers in regional areas, and places are limited and offered through participating lenders rather than applied for directly.

The First Home Super Saver Scheme is federal and run by the ATO, and works through superannuation rather than through a lender or a revenue office.

These generally stack rather than exclude each other, so it is worth checking all four. The place people lose money is by assuming the grant is the main event: in an established-home purchase in a capital city, the duty concession and the avoided mortgage insurance are usually worth far more than any grant, and the grant may not be available at all.

Work out your actual borrowing capacity before you look at property, not after. Lenders assess serviceability on income, existing debts, living expenses and a buffer rate above the actual interest rate, so the amount you can borrow is usually less than a simple repayment calculation suggests. Moneysmart's mortgage calculator is a neutral starting point.

Clean up your liabilities first. Credit card limits count against you at their limit, not their balance — an unused card with a large limit reduces borrowing capacity as though it were drawn. Buy-now-pay-later accounts and personal loans show in your banking data and in your credit file. Closing what you do not use, months before applying, is the single cheapest way to increase what you can borrow.

Get pre-approval. This is a conditional assessment of your capacity, usually valid for around three months, and it tells you a realistic price range. It is not a guarantee: it is subject to a valuation of the specific property, to your circumstances not changing, and to the lender's final credit decision. Treating pre-approval as unconditional is how people end up unable to complete after an auction.

Decide whether to use a broker. A broker has access to a panel of lenders and is paid commission by the lender that writes the loan, which is a real conflict of interest to be aware of rather than a reason to avoid brokers. Ask which lenders are on their panel, and ask directly how they are paid. Moneysmart sets out the questions worth asking.

Choose the loan structure deliberately. Variable rates move with the market and usually allow unlimited extra repayments and an offset account; fixed rates lock the repayment for a term but typically restrict extra repayments and can carry break costs if you exit early. An offset account is generally more useful to a first buyer than a marginally lower rate, because it keeps your emergency savings working against the loan while staying accessible.

Then, once you have a specific property, convert pre-approval into formal approval. The lender orders its own valuation, and a valuation coming in below the contract price is the most common late failure point — you must fund the difference in cash.

The single most important legal difference is cooling off. In a private treaty sale in most states there is a cooling-off period after exchange, during which you can withdraw and forfeit only a small percentage of the price. At auction there is no cooling-off period anywhere. The moment the hammer falls you are contractually bound, and you must complete or lose your deposit and potentially more.

That means everything you would normally do during the cooling-off period has to be done before the auction: contract review by your conveyancer, building and pest inspection, strata search, and formal finance sorted to the point that you are confident it will hold. All of it, on a property you may not win, is money you may spend several times over.

Deposits are usually around ten per cent, payable on the fall of the hammer or at exchange. Some agents accept a smaller deposit by prior negotiation, but this must be agreed before you bid, not after.

Read the contract for what it excludes. Sellers can and do include clauses limiting your rights, and in some states the contract is where compliance certificates, pool registrations, unapproved works and easements are disclosed. Your conveyancer is looking for exactly this.

Do not rely on the price guide. Guides are marketing, underquoting is a persistent problem that state fair trading bodies pursue, and the reserve is not disclosed. Set your own maximum from your finance approval and your own valuation of the property, write it down, and treat it as a hard limit.

If you are buying an apartment, the strata records matter more than the apartment. A cheap unit in a building with a depleted sinking fund and known defects is not cheap; you have bought a share of a future special levy that can run to five figures.

Between exchange and settlement — commonly around six weeks, though it is negotiable — your conveyancer does the searches, the lender prepares documents, and you arrange building insurance. Insurance usually needs to be in place from exchange, not settlement, because in most states the risk passes to the buyer at exchange. Check this with your conveyancer for your state.

Do a final inspection shortly before settlement. You are checking that the property is in the condition it was in when you contracted, that inclusions listed in the contract are still there, and that nothing has been damaged during the seller's move. Problems found at this point can be dealt with; problems found after settlement generally cannot.

On settlement day the transfer is completed electronically, the loan funds are drawn, duty is paid and the title transfers. You get the keys. Delays of a day or two are common and usually generate penalty interest under the contract, which is another reason not to book removalists for the exact settlement morning.

In the first year, the two things that matter financially are the offset account and the rate. Put your salary and savings into an offset rather than a separate savings account: the interest you avoid is effectively a return at your mortgage rate, tax-free, which beats almost any at-call deposit. And check your rate against new-customer rates after twelve months, because lenders reliably charge existing borrowers more than new ones and a phone call asking for a match is often successful.

Build a buffer before making extra repayments. Money paid into the loan without a redraw facility is hard to get back at the moment you need it; money in an offset does the same work and stays accessible.

If repayments become difficult, act early. Lenders have hardship provisions and are obliged to consider a hardship notice, and the options — a period of reduced or paused repayments, extending the term — are far wider before arrears accumulate than after. Moneysmart's guidance on problems paying a mortgage sets out the process, and the free national financial counselling service is independent of your lender.