First home buyer loans: deposits, costs and the application process

Buying your first home involves more than obtaining a first home buyer loan. You will also need to consider your deposit, purchasing costs, government assistance, property selection and ongoing ability to make repayments.

Starting the finance process early can help you establish a realistic price range before you make an offer or attend an auction.

How much deposit do first home buyers need?

A 20% deposit can generally help a buyer avoid lender’s mortgage insurance, but it is not the only pathway.

Depending on eligibility and lender requirements, some buyers may purchase with:

• a 5% deposit through an Australian Government guarantee
• another low-deposit home loan
• a family guarantee
• an eligible shared-equity arrangement
• assistance from a gift or inheritance
• a combination of savings and an approved grant.

A low-deposit loan means borrowing a greater proportion of the purchase price. This can increase repayments, interest and exposure to changes in property values.

Costs to budget for

In addition to the deposit, possible costs include:

• stamp duty or transfer duty
• conveyancing or legal fees
• building and pest inspections
• strata reports
• lender application or valuation fees
• settlement adjustments
• moving expenses
• insurance
• council and water charges
• lender’s mortgage insurance
• immediate repairs or furnishings.

First home buyer concessions vary by state or territory and can change. Check the relevant revenue office requirements before relying on a concession.

Government support

Potential support may include:

• the Australian Government Home Guarantee Scheme
• the First Home Super Saver Scheme
• state or territory first home owner grants
• stamp duty concessions
• state-based shared-equity programs
• the Australian Government Help to Buy program, where available and suitable.

Each initiative has separate eligibility, property and application rules. Qualifying for a government program does not mean a lender must approve the loan.

What lenders assess

A lender will generally review:

• income and employment
• living expenses
• debts and credit limits
• savings history
• account conduct
• credit history
• the source of the deposit
• the proposed property
• the ability to meet repayments at an assessed rate.

Lenders may also need evidence that funds are available for purchasing costs as well as the deposit.

Pre-approval

Conditional pre-approval can provide an initial indication of what a lender may be prepared to lend.

It is not unconditional approval. Conditions may still relate to:

• valuation
• verification of income and expenses
• acceptable property security
• unchanged financial circumstances
• expiry dates
• lender policy at the time of formal approval.

Avoid making an unconditional offer solely because you hold pre-approval. Obtain legal advice about appropriate finance and inspection conditions.

The usual application process

A typical process involves:

• reviewing your budget and objectives
• calculating an indicative borrowing range
• preparing supporting documents
• comparing lenders and loan features
• seeking conditional pre-approval where appropriate
• identifying a property
• obtaining legal and property advice
• submitting the full application
• completing valuation and lender checks
• receiving formal ap…5064 tokens truncated…an structure, lender assessment and tax changes.

An investment property loan finances a property that will be rented or held for investment rather than occupied as your principal home.

Investment lending can involve different rates, deposit requirements, servicing rules and taxation considerations from owner-occupied lending.

Deposit and equity

Investors may fund a purchase using:

• cash savings
• available equity in another property
• sale proceeds
• a combination of cash and borrowed funds.

Equity is the difference between a property’s value and the debt secured against it. However, lenders will not necessarily allow all available equity to be borrowed.

The lender will assess:

• loan-to-value ratio
• income and liabilities
• proposed rent
• property type and location
• repayment capacity
• purpose and structure of the borrowing.

Borrowing against your home to purchase an investment property can place your home at risk if repayments cannot be maintained.

Principal and interest versus interest only

Principal-and-interest repayments reduce the loan balance over time.

Interest-only repayments generally cover interest for an agreed period without reducing principal. This can provide lower initial repayments, but usually results in a higher balance for longer and can increase the total cost.

ASIC has previously highlighted that interest-only home loans can cost more over the long term because principal repayments are deferred.

When the interest-only period ends, repayments can rise because the principal must be repaid over the remaining term.

How lenders assess rental income

Lenders generally use only part of the expected or existing rent to allow for expenses and vacancies.

They may request:

• a tenancy agreement
• rental statements
• a property manager’s appraisal
• a valuation assessment
• tax returns for existing properties.

The treatment of short-term accommodation or specialised rental income can vary between lenders.

Loan structure matters

Investment loans should generally be clearly separated from private borrowing.

Combining private and investment expenditure in the same loan can complicate taxation calculations and record keeping. Cross-collateralising several properties can also reduce flexibility when selling or refinancing.

Before purchasing, discuss the proposed ownership and debt structure with:

• a mortgage broker
• a registered tax agent or accountant
• a solicitor or conveyancer
• a licensed financial adviser where appropriate.

Negative gearing changes

Negative gearing broadly arises where deductible rental-property expenses exceed rental income.

The Australian Government announced changes in the 2026–27 Federal Budget, which the ATO states are now law and are scheduled to apply from 1 July 2027. The ATO states that the reforms limit negative gearing for residential property investments to new builds and replace the existing 50% CGT discount for affected individuals, trusts and partnerships with revised arrangements. These changes do not apply to the 2025–26 tax return.

This is a significant policy change. Investors should obtain current taxation advice before purchasing, selling or restructuring an investment property. Transitional and grandfathering rules may materially affect individual outcomes.

Do not purchase a property solely for an expected tax deduction. Investment performance should also consider rent, vacancies, maintenance, insurance, rates, land tax, management fees, interest, capital risk and selling costs.

Property risks

Before purchasing, investigate:

• local rental demand
• vacancy rates
• strata costs
• building defects
• insurance availability
• planning changes
• flood, fire and environmental risks
• ongoing maintenance
• likely resale demand.

Arrange the finance before committing

Call to action: Speak with a finweb mortgage broker about investment loan options, equity, lender servicing and the proposed finance structure. Obtain separate taxation and legal advice before proceeding.

*General information only. finweb and its mortgage brokers do not provide taxation advice unless separately authorised to do so. Tax law and lending policy can change.*