The First-Home Buyer Questions Everyone Is Googling

Q: 1. How much deposit do I actually need?

The traditional answer is 20% of the purchase price, plus enough money to cover your other buying costs. On a $700,000 property, a 20% deposit would be $140,000. Before you close the laptop, cancel brunch forever and start selling furniture online, there may be other options. Some lenders accept deposits as low as 5%. Under the Australian Government’s 5% Deposit Scheme, eligible first-home buyers may purchase with a minimum 5% deposit without paying lenders mortgage insurance. The scheme currently has no income caps, unlimited places and applies to eligible properties under the relevant location-based price cap.

Ashley Ciantar
Jul 20
10 min read

Buying your first home is exciting.

It is also a strange period in your life when you suddenly find yourself Googling things like:

“What is conveyancing?”“

Do I really need a building inspection?”

“Why does the bank think I spend $900 a month on takeaway?”

"And what on earth is LMI?”

The good news is that you do not need to become a property lawyer, mortgage broker, building inspector and professional auction bidder overnight.

You simply need the right advice, in the right order, before you make a very expensive mistake.

Here are some of the questions Australian first-home buyers search most often with straight answers and no unnecessary financial gobbledygook.

1. How much deposit do I actually need?

The traditional answer is 20% of the purchase price, plus enough money to cover your other buying costs.

On a $700,000 property, a 20% deposit would be $140,000.

Before you close the laptop, cancel brunch forever and start selling furniture online, there may be other options.

Some lenders accept deposits as low as 5%. Under the Australian Government’s 5% Deposit Scheme, eligible first-home buyers may purchase with a minimum 5% deposit without paying lenders mortgage insurance. The scheme currently has no income caps, unlimited places and applies to eligible properties under the relevant location-based price cap. (First Home Buyers)

However, a smaller deposit means a larger loan, higher repayments and less equity from day one. Being allowed to borrow more does not automatically mean you should.

The smarter question is not simply,

“What is the smallest deposit I can use?”

It is:

“What purchase price and repayment will still allow me to have a life after settlement?”

2. What is lenders mortgage insurance, and does it protect me?

No — despite having the word “insurance” in its name, lenders mortgage insurance does not insure you.

It generally protects the lender if you cannot repay the loan and the lender suffers a loss when the property is sold.

LMI is commonly charged when you borrow more than 80% of the property’s value, although lending policies differ. It can be a significant upfront cost or may sometimes be added to the loan, which means you could also pay interest on it. (Moneysmart)

Eligible buyers using the Australian Government’s 5% Deposit Scheme can avoid LMI because the government guarantees part of the loan. (Prime Minister of Australia)

In other words, LMI protects the bank.

For emotional support, you will still need your friends, family or a very patient property professional.

3. How much can I borrow?

Your borrowing capacity depends on factors including:

· your income;

· existing loans and credit-card limits;

· living expenses;

· dependants;

· employment history;

· interest rates; and

· the lender’s own assessment criteria.

The number shown on an online calculator is a starting point, not a legally binding promise from the bank.

A lender or mortgage broker will examine your actual circumstances and may assess your ability to repay the loan at a higher interest rate than the rate you initially receive.

Pre-approval commonly lasts around three to six months. It gives you an indicative borrowing limit, but it is not unconditional approval and does not guarantee that the lender will approve every property you choose. (Moneysmart)

This is important because the bank is approving two things:

You as a borrower; and
The property as acceptable security.

You may be perfectly delightful, financially responsible and excellent at paying bills, but the bank can still reject a property because of its size, location, condition, title or other risks.

4. Should I use every dollar the bank says I can borrow?

Probably not.

Your maximum borrowing capacity is the bank’s view of the upper limit it may be prepared to lend. It is not a recommended household budget.

Your real budget should also allow for:

· council rates;

· owners corporation fees, where applicable;

· building insurance;

· maintenance and repairs;

· utilities;

· moving costs;

· changes in interest rates; and

· the occasional meal that is not two-minute noodles.

Before choosing your limit, test the repayments at a higher interest rate and consider how comfortably you could cope if your income or expenses changed.

You are buying a home, not volunteering for a 30-year financial hostage situation.

5. What other costs do I need besides the deposit?

The deposit receives all the attention, but it does not arrive at settlement alone.

Depending on the property and your circumstances, additional costs may include:

· land transfer duty, commonly called stamp duty;

· conveyancing or legal fees;

· building and pest inspections;

· owners corporation report fees;

· loan and valuation fees;

· adjustments for rates and other property charges;

· removalists;

· insurance; and

· urgent repairs or purchases after settlement.

In Victoria, eligible first-home buyers currently pay no stamp duty on a qualifying home valued up to $600,000. A concession applies from $600,001 to $750,000. The benefit may apply to a new home, an established home or eligible vacant land, provided the requirements are satisfied. (State Revenue Office)

Do not assume that because you have a 5% deposit, you only need 5% of the purchase price sitting in your account. Your broker and conveyancer should calculate the full amount required before you start making offers.

6. Do first-home buyers still receive a government grant?

Sometimes, but not simply because it is your first purchase.

In Victoria, the First Home Owner Grant is currently a $10,000 payment for eligible buyers purchasing or building a new home valued at up to $750,000.

It does not generally apply to an ordinary established home that has previously been occupied. Residency and other eligibility requirements also apply. (State Revenue Office)

This is one of the most common misunderstandings among first-home buyers.

Stamp-duty assistance and the First Home Owner Grant are separate benefits with different rules.

Never base your budget on a grant until your eligibility has been properly confirmed.

7. Can I use my superannuation to buy my first home?

Potentially, through the First Home Super Saver Scheme.

The scheme allows eligible buyers to make voluntary contributions into superannuation and later apply to release qualifying amounts to help purchase or build a first home.

Eligible voluntary contributions are subject to annual and overall limits. The current maximum that can count towards release is generally $15,000 from any one financial year and $50,000 across all years, plus associated earnings calculated under the scheme. (Australian Taxation Office)

This does not mean you can simply withdraw your existing compulsory super balance whenever you find a cute townhouse.

There are rules, applications and timing requirements. Obtain financial and tax advice before relying on the scheme, and do not sign a contract without understanding the required process.

8. Should I get pre-approval before inspecting properties?

Yes.

Without pre-approval, you may spend six weekends falling in love with properties you cannot buy.

Pre-approval helps establish a realistic range and can make you appear more prepared when negotiating. However, it remains conditional and may need to be reassessed if your circumstances, interest rates or the property change. (Moneysmart)

A practical order is:

Finance first. Property search second. Emotional attachment third.

Unfortunately, many buyers do this in reverse.

9. Do I need a conveyancer or solicitor before making an offer?

Absolutely.

The contract and vendor statement can reveal issues affecting the property, including title restrictions, easements, planning matters, owners corporation obligations, settlement terms and special conditions.

Do not wait until your offer has been accepted to discover that the contract contains something you do not understand or cannot comply with.

In Victoria, auction purchases are generally unconditional and do not have the standard cooling-off rights available in some private-sale circumstances. This makes reviewing the legal documents before auction day particularly important.

The selling agent represents the vendor.

The contract was prepared for the vendor.

The smiling person handing out brochures at the inspection also works for the vendor.

Bring your own legal representative onto your team.

10. Do I really need a building and pest inspection?

Yes, it is a very wise investment.

A building inspection may identify visible defects, safety concerns, moisture issues or signs of structural movement. A timber-pest inspection may identify evidence of termites or other timber damage.

It is important to understand what an inspection does not do. It is not a guarantee that nothing will ever go wrong, and inspectors may be unable to assess concealed or inaccessible areas.

For apartments, buyers should also investigate the owners corporation (Body Corporate). This can include reviewing fees, insurance, financial records, maintenance plans, meeting minutes, known defects, disputes and proposed special levies.

A beautifully renovated kitchen is lovely.

A beautifully renovated kitchen sitting underneath a leaking roof is less lovely.

11. What is an owners corporation, and should high fees scare me?

An owners corporation manages common property within a subdivision, such as shared driveways, lifts, gardens, roofs, foyers, basements and building insurance.

Fees vary depending on the property and the services provided.

High fees are not automatically bad, and low fees are not automatically good.

Higher fees may reflect lifts, pools, gyms, extensive gardens, security, embedded services or appropriate funding for long-term maintenance.

Very low fees can sometimes mean the building is simple and inexpensive to operate. They can also mean insufficient money is being collected for future repairs.

The real questions are:

· What do the fees cover?

· Is the owners corporation financially healthy?

· Are major works planned?

· Are there defects, disputes or special levies?

· Is the maintenance fund appropriate for the building?

Do not judge an owners corporation by one annual number. Read the records.

12. Should I buy a house, townhouse or apartment?

There is no universally correct answer.

A house may provide more land, privacy and renovation flexibility, but it may require a higher budget or a longer commute.

A townhouse may offer a balance between internal space, location and lower maintenance.

An apartment may provide access to a better location at a lower purchase price, but careful due diligence is required regarding the building, owners corporation and future resale appeal.

Choose the property that suits:

· your budget;

· your lifestyle;

· your likely ownership period;

· your tolerance for maintenance;

· your preferred location; and

· its future marketability.

Your first home does not need to be your forever home.

It does, however, need to be a property that future buyers are also likely to want.

13. How much should I offer?

Not necessarily the advertised price.

Your offer should be informed by recent comparable sales, the property’s condition, competing interest, the vendor’s expectations and your own walk-away limit.

The advertised range is not a professional valuation, and the selling agent cannot tell you what the property is worth to you.

Before offering, decide:

· your preferred price;

· your strong but sensible price; and

· your absolute walk-away price.

Your walk-away price must be chosen before adrenaline, fear of missing out and an enthusiastic selling agent enter the chat.

14. Should I make an offer subject to finance?

Where appropriate, a finance condition may provide important protection if formal loan approval has not yet been obtained.

However, the wording and timing of the condition matter. A poorly drafted finance clause may not provide the protection you assume it does.

You may also consider conditions relating to a building and pest inspection or other due diligence, depending on the property and method of sale.

Have your conveyancer advise you on the contract and your broker advise you on the finance risk before submitting an offer.

At auction, purchases are unconditional, so you generally cannot add a finance condition after winning the bidding.

15. Is buying at auction different from making a private offer?

Very.

At auction, the successful bidder generally signs the contract and pays the required deposit immediately. There is usually no cooling-off period, and the contract is normally unconditional.

Before auction day, you should have:

· confirmed your finance position;

· reviewed the contract;

· completed your due diligence;

· arranged any inspections;

· decided your bidding strategy; and

· set a firm limit.

Auctions are designed to create urgency and competition.

Your job is to remain calm while everyone else temporarily forgets that $10,000 is real money.

16. What happens if the bank values the property below my purchase price?

The lender usually bases its loan on the lower of the purchase price or its valuation.

For example, imagine you agree to pay $700,000 but the lender values the property at $670,000. The bank may calculate its lending percentage using $670,000, leaving you to contribute a larger amount from your own funds.

A low valuation can therefore create a serious funding shortfall.

This is one reason buyers should not assume that because they have pre-approval, every offer within that amount is safe.

The price you agree to pay and the value the bank accepts are not always the same thing.

17. Is it better to wait for interest rates or property prices to fall?

Possibly however, nobody can reliably identify the perfect moment in advance.

If rates fall, borrowing capacity and buyer competition may increase. If prices soften, sellers may become more negotiable, but banks may also lend more cautiously. Waiting may help you save a larger deposit, while prices and rents may move during that time.

Rather than trying to predict the exact bottom of the market, ask:

· Am I financially ready?

· Can I comfortably afford the repayments?

· Do I have a reasonable cash buffer?

· Am I likely to hold the property for several years?

· Have I found a quality property at a supportable price?

The perfect market rarely sends a calendar invitation.

18. What is the biggest mistake first-home buyers make?

Buying emotionally before completing the numbers and due diligence.

Common mistakes include:

· shopping before understanding borrowing capacity;

· using every available dollar;

· forgetting additional purchase costs;

· trusting an advertised price without checking comparable sales;

· skipping contract or building investigations;

· ignoring owners corporation records;

· choosing a property based only on appearance;

· bidding without a firm limit; and

· assuming the selling agent is advising them independently.

The goal is not simply to buy your first home.

The goal is to buy a good property, on sensible terms, without placing yourself under unnecessary financial pressure.

19. Should I consider using a buyer’s agent?

Some first-home buyers choose to engage a buyer’s agent, a professional who represents the buyer rather than the seller throughout the search and purchase process.

This can include helping you shortlist suitable properties, assess value, access off-market opportunities, negotiate with selling agents and bid at auction.

It is not essential, and many buyers successfully purchase without one. However, it can be useful if you are time-poor, unfamiliar with the process, or simply want someone experienced on your side in a market where most professionals you encounter are working for the vendor.

Like any service, it comes with a cost, so it is worth weighing up whether the potential benefits, such as avoiding overpaying or making a poor purchase — justify that expense for your situation.

At the very least, it is helpful to understand that the selling agent does not represent you, and that having independent advice, whether from a buyer’s agent or other trusted professionals, can make the process clearer and less stressful.