Getting Started as a First Home Buyer

06th Feb, 2026 | Live the Dream, Articles, First Home Buyer

While the goal as a first home buyer may be to save a 20% deposit, the market has evolved. Today, many first home buyers are successfully entering the market with as little as a 5-10% deposit by using government schemes or other smart strategies, depending on their circumstances and lender eligibility

Understanding the core components of a home loan can help you choose the right path for you and making your property dream a reality.

At a Glance: What You’ll Learn

Core Loan Types & Repayments: Understand the difference between principal and interest, fixed vs variable rates, and how your loan term affects what you pay.
Key Loan Features: learning the difference between offset accounts, redraw facilities, and comparison rates.
How Lenders Assess You: Get a clear picture of LVR, LMI, serviceability, credit scores, and what lenders look for in your application.
The Application Process: From the documents you need to the step-by-step journey from enquiry to getting the keys, we’ll map it out for you.
The Full Cost of Buying: A checklist of all the expenses you need to budget for beyond your deposit.

Core Loan Types & Repayments

Your home loan isn’t just one product. It has several core components that determine how you repay it and how much it costs you over time.

Principal & Interest vs Interest-Only:

Principal & Interest (P&I): This is a standard repayment type. Each repayment you make covers both the interest charged for that period and a small portion of the original loan amount (the principal). Over time, your loan balance decreases.
Interest-Only (IO): For a set period (usually 1-5 years), your repayments only cover the interest. Your loan balance doesn’t decrease, so repayments are lower initially. This is more common for investors, but can be used by owner-occupiers in specific situations. It’s a higher-risk strategy as you’ll face much larger P&I repayments once the IO period ends.

Variable vs Fixed vs Split Rates:

Variable Rate: Your interest rate can move up or down with the market. This offers flexibility and features like offset accounts, but your repayments can change, making budgeting harder.
Fixed Rate: Your interest rate is locked in for a set term (e.g., 1, 3, or 5 years), providing certainty over your repayments. However, you might miss out if rates fall, and making extra repayments is often limited, depending on the specific loan product you choose. Exiting a fixed term early can incur significant ‘break costs’.
Split Rate: You may get the best of both worlds by fixing a portion of your loan and leaving the rest on a variable rate.

Loan Term (25 vs 30 Years):

This is the length of time you have to repay the loan. A 30-year term is most common for first home buyers as it results in lower monthly repayments. However, a shorter 25-year term means you pay less interest over the life of the loan, saving you money in the long run.

Advertised Rate vs Comparison Rate:

The advertised rate is the base interest rate for the loan.
The comparison rate, which must be displayed by law, is a more helpful figure. It includes the interest rate plus most upfront and ongoing fees, giving you a truer sense of the loan’s overall cost. Always compare loans using the comparison rate.

HOW MUCH CAN I BORROW?

Features You’ll See on Product Sheets

When you look at loan options, you’ll see a list of features. Here’s what they mean.

Offset Account: Operates like a typical transaction account, however, it is typically linked to your loan. The balance in this account is ‘offset’ against your loan principal, so you only pay interest on the difference. For example, with a $500,000 loan balance and $20,000 in your offset, you only pay interest on $480,000.
Redraw Facility: Allows you to access any extra repayments you’ve made on top of your required minimum. It’s a useful feature for emergencies, but some lenders have fees for making withdrawals or limits on the amount you can redraw.
Extra Repayments: The ability to pay more than your minimum required repayment, which helps you pay off your loan faster and save on interest. This is often restricted on fixed-rate loans.
Repayment Frequency: You can typically choose to pay weekly, fortnightly, or monthly. Paying fortnightly (half your monthly amount) results in one extra full monthly repayment per year, helping you clear your debt sooner.
Portability: This feature allows you to take your home loan with you when you sell your current property and buy a new one, potentially saving on the costs of setting up a new loan.
Fees, Fees, Fees: Be aware of application/establishment fees (to set up the loan), ongoing annual or monthly fees, valuation fees, settlement fees, discharge fees (to close the loan), and fixed-rate break costs.

Risk & Assessment Basics

Lenders follow a strict process to decide if they can lend you money.

LVR & LMI: Your Loan-to-Value Ratio (LVR) is the percentage of the property’s value you are borrowing. If you have a 10% deposit, your LVR is 90%. If your LVR is above 80%, lenders will often require you to pay Lenders Mortgage Insurance (LMI). This insurance protects the lender, not you, if you can’t repay the loan and can be a substantial upfront cost, on top of other transaction fees when getting your loan.

Genuine vs Non-Genuine Savings:

Genuine savings are funds you’ve personally saved and held for at least three months. This shows the lender you have financial discipline.
Non-genuine savings include one-off lump sums like gifts, inheritances, or the sale of an asset. Lenders may have different policies on how they treat these funds.
Serviceability: This is the lender’s calculation of whether you can afford the loan. They look at your income versus your expenses (using a benchmark called the Household Expenditure Measure or HEM), your Debt-to-Income (DTI) ratio, and apply an assessment rate (the loan’s interest rate plus a 3% buffer) to ensure you could still make repayments if rates rise.
Credit Score & Report: Your credit score is a number that summarises your credit history. Lenders will review your report for late payments, defaults, and recent credit applications (including BNPL). A clean record and a high score are crucial.

Property & Security Considerations

Not all properties are seen as equal by lenders.

Valuation Types: A lender will arrange a valuation to confirm a property’s worth before they approve your loan. This can be a desktop (automated), kerbside (drive-by), or full (internal inspection) valuation. The valuation figure can sometimes be lower than the price you agreed to pay.
Restricted Properties: Some lenders are hesitant to finance certain properties they consider higher risk. This can include very small apartments (under 40-50sqm), properties in high-density postcodes, or homes with unapproved building works as an example.

Your Application Pack: Documents Checklist

Being prepared is key to a smooth application.

Identification: 100 points of ID (e.g., driver’s licence, passport, Medicare card).
Income: Recent payslips, your latest tax return or Notice of Assessment (NOA).
Expenses & Liabilities: 3-6 months of bank and credit card statements, plus statements for any personal loans, car loans, or HELP/HECS debt.
Savings: Statements showing your deposit funds and a history of saving.
Rental History: A copy of your current rental ledger if applicable.
What Lenders Scan For: Lenders review statements for red flags like regular gambling transactions, account dishonours, frequent use of Buy Now Pay Later services, and large, unexplained cash deposits.

Step-by-Step: From Enquiry to Settlement

Enquiry: You speak to a mortgage broker.
Fact Find: The broker assesses your financial situation, goals, and needs.
Document Collection: You gather the paperwork from the checklist above.
Borrowing Capacity: The broker confirms how much you can likely borrow.
Lender Shortlist: The broker presents you with suitable loan options.
Pre-Approval: You get conditional approval from a lender for a specific loan amount.
Offer & Valuation: You find a property, make an offer, and the lender conducts a valuation.
Unconditional Approval: The lender is satisfied with the property and your finances, and issues formal approval.
Settlement: The legal process where ownership is transferred to you, and the lender provides the funds. You get the keys!

Cost Checklist Beyond the Deposit

Stamp Duty: State government tax. Check for first home buyer concessions.
Legal/Conveyancing Fees: For the solicitor/conveyancer handling the property transfer.
Building & Pest Inspections: A crucial step before committing to buy.
Lender & Settlement Fees: Various fees charged by the lender and government bodies.
Building Insurance: You’ll need this from the date of contract exchange.
Moving Costs & Buffer: Budget for movers, utility connections, and an emergency fund.

Frequently Asked Questions (FAQs)

1. Is LMI a bad thing?
Think of it more as a tool. It allows you to buy a home sooner with a smaller deposit. For many, the benefit of getting into the market earlier outweighs the cost of LMI.

2. Can gift funds count as genuine savings?
It depends on the lender. Some will accept a gift but still want to see a 3-month history of you saving your own funds. Others may require the gift to be held in your account for 3-6 months.

3. How long does pre-approval last?
Generally 90 days. If you don’t find a property in that time, you’ll need to refresh it.

4. What are fixed-rate break costs?
A significant fee charged if you end your fixed-rate contract early. It’s calculated based on funding costs for the lender and can range from a few hundred to thousands of dollars, but it all depends on your finances, the lender and your loan product.

Ready to Take the Next Step?

Understanding the theory is one thing, but applying it to your situation is another. An expert Yellow Brick Road mortgage broker can assess your eligibility, explain your options, and find a loan that is tailored to your unique needs.

We’ll get you sorted. Contact a local Yellow Brick Road mortgage broker today for a no-obligation chat.