Key Takeaways
- You can buy with as little as 5% deposit using government schemes or family guarantees
- Victorian first home buyers can access up to $10,000 in grants plus stamp duty exemptions
- Pre-approval gives you confidence to make offers and shows sellers you are serious
- Your borrowing capacity depends on income, expenses, existing debts, and lender criteria
- First Home Guarantee allows purchase with 5% deposit and no LMI (limited places)
- Common mistakes include not getting pre-approved and overstretching your budget
Buying your first home is one of life's biggest financial decisions. The process can feel overwhelming with so many steps, unfamiliar terminology, and significant amounts of money involved. But with the right preparation and guidance, first home buyers can navigate the journey successfully.
At Mortgage & Finance Advisory, we help first home buyers across Victoria understand their options and find the right loan. This guide covers everything you need to know, from saving your deposit to settlement day.
How Much Deposit Do You Need?
The traditional advice is to save 20% deposit to avoid Lenders Mortgage Insurance (LMI). However, this isn't always necessary or practical in today's market. Here are your options:
- 20% deposit: No LMI required, best interest rates available
- 10-19% deposit: LMI applies but can be capitalised into the loan
- 5% deposit with First Home Guarantee: No LMI, limited places available each financial year
- 5% deposit with Family Guarantee: Parents use their property as additional security, no LMI required
- 2% deposit: Some lenders offer this for strong applicants with guarantor support
Use our Borrowing Power Calculator to estimate how much you could borrow, and our Stamp Duty Calculator to understand your total purchase costs.
Deposit Tip: Don't forget to budget for stamp duty (unless exempt), legal fees ($1,500-$2,500), building inspection ($400-$600), and moving costs. For a $600,000 purchase, allow approximately $25,000-$30,000 on top of your deposit.
Government Grants and Schemes for First Home Buyers
First Home Owner Grant (FHOG) - Victoria
Victorian first home buyers purchasing or building a new home valued up to $750,000 can receive a $10,000 grant. This applies to new properties only, not established homes. See our detailed First Home Buyer service page for eligibility details.
Stamp Duty Exemptions and Concessions
Victorian first home buyers receive significant stamp duty benefits:
- Full exemption: Properties up to $600,000 (no stamp duty payable)
- Concession: Properties $600,001 - $750,000 (reduced stamp duty on sliding scale)
First Home Guarantee (formerly First Home Loan Deposit Scheme)
The federal government guarantees part of your loan, allowing purchase with just 5% deposit and no LMI. Income caps and property price limits apply. Places are limited and released each July.
First Home Super Saver Scheme (FHSSS)
Make voluntary super contributions, then withdraw them (plus earnings) for your home deposit. This provides tax advantages that can boost your savings by thousands.
| Scheme | Benefit | Eligibility |
|---|---|---|
| FHOG (VIC) | $10,000 grant | New homes up to $750K |
| Stamp Duty Exemption | Save up to $31,000 | Properties up to $600K |
| First Home Guarantee | 5% deposit, no LMI | Income caps apply |
| FHSSS | Tax-effective savings | Max $50K withdrawal |
Getting Pre-Approved
Pre-approval (also called conditional approval) is when a lender assesses your application and indicates how much they will lend, subject to finding a suitable property. It typically lasts 3-6 months.
Why Pre-Approval Matters
- Know your budget before you start looking at properties
- Make offers with confidence
- Show real estate agents and sellers you are a serious buyer
- Identify and resolve any issues before you find your dream home
- Move quickly when you find the right property
Visit our Pre-Approval Guide for a detailed walkthrough of the process.
Client Success Story
Sarah, a first home buyer from Geelong, used the First Home Guarantee to purchase a $520,000 townhouse with just 5% deposit ($26,000). Combined with the stamp duty exemption, her total upfront costs were under $35,000. She saved over $15,000 in LMI she would have otherwise paid.
Understanding Your Borrowing Capacity
Lenders assess your borrowing capacity based on several factors:
- Income: Base salary, overtime, bonuses, commission, rental income
- Expenses: Living costs, existing loan repayments, credit card limits
- Deposit: Genuine savings history demonstrates financial discipline
- Credit history: Defaults, late payments, and enquiries affect approval
- Employment: Permanent roles preferred, but contractors and self-employed can qualify
Common Mistake: Credit Card Limits
Lenders assess credit cards at their full limit, not your current balance. A $10,000 credit card you never use still reduces your borrowing capacity by approximately $30,000-$50,000. Consider reducing limits or closing unused cards before applying.
The Home Buying Process
- Assess your finances: Review savings, income, and expenses
- Get pre-approved: Know your budget before looking
- Start house hunting: Inspections, research, shortlisting
- Make an offer: Private treaty or auction
- Building and pest inspection: Before going unconditional
- Formal loan approval: Lender values the property and confirms
- Exchange contracts: Pay deposit (usually 10%)
- Settlement: Ownership transfers, you get the keys!
Common First Home Buyer Mistakes to Avoid
- Not getting pre-approved: You might miss out on properties or have your offer rejected
- Overstretching your budget: Just because you can borrow it doesn't mean you should
- Skipping building inspections: $500 now could save $50,000 in hidden defects
- Forgetting about ongoing costs: Rates, insurance, maintenance add up
- Not comparing lenders: The first offer isn't always the best
- Making big financial changes: Avoid changing jobs or taking new credit during the process
Frequently Asked Questions
There is no minimum income requirement, but your borrowing capacity depends on your income relative to expenses and debts. As a rough guide, you can typically borrow 5-6 times your gross annual income. A household earning $100,000 might borrow $500,000-$600,000, but this varies by lender and circumstances.
Yes, potentially. With the First Home Guarantee (5% deposit, no LMI), $20,000 could support a purchase up to approximately $350,000 after allowing for costs. With a family guarantee, you could potentially purchase higher. We can assess your specific options.
Most mainstream lenders prefer credit scores above 600-650. However, scores below this don't automatically disqualify you. Some specialist lenders consider lower scores, particularly if issues are explained and in the past.
This depends on your circumstances, local market conditions, and how long you plan to stay. Generally, buying becomes more financially advantageous over longer timeframes. Consider your job security, lifestyle flexibility needs, and whether you're ready for ownership responsibilities.
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