First home buyers have a range of options for getting into a property, and there are a number of considerations you need to look at before even making an offer.

Most of the limitations first home buyers face concerns their ability to borrow money and come up with a sizeable deposit.

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How much deposit have you got?

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Most first home buyers generally do not have huge sums of money saved to put down on a property.

Traditionally, banks and lenders require a borrower to put down a 20% deposit, as this shows they can manage money, and it also represents less risk to the bank, should the property market fall or the borrower default.

If a borrower cannot afford a 20% deposit, they could be forced to pay Lender’s Mortgage Insurance (LMI), which is a one-off upfront insurance levy put in place to protect the lender. This generally costs the home buyer tens of thousands of dollars, and it can significantly impact your ability to move forward with a property purchase.

Fortunately, there are a number of ways first home buyers can get finance for a property with only a small upfront deposit.

Guarantor Loan: It is possible to use the equity in a family member's home (normally your parents), to help make up the deposit shortfall.

First Home Loan Deposit Scheme: The FHLDS is a Federal Government initiative, whereby the Government acts as a guarantor for the deposit shortfall. It is possible to get a loan under this scheme with as little as a 5% deposit.

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How much can you borrow?

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If you are able to provide the necessary deposit, or if you qualify for another type of loan or scheme, the next consideration is how much you can borrow.

Your ability to borrow money is based on your income and expenses, your employment type and also your credit history.
Lenders want to make sure you are going to be able to make the required repayments, and they will only lend based on what they believe you can service.

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Government grants and stamp duty exemptions

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Purchasing property in Australia is incredibly expensive and the main cost that normally causes a lot of issues for first home buyers is the stamp duty.

Stamp duty is an upfront, one-off tax based on the purchase price of the property. The rate of the stamp duty varies between the different states and territories; however, it is normally around 4-5%.

Most State Governments exempt first home buyers from paying stamp duty, which makes it easier for them to afford the deposit. State Governments also offer what is known as the first homeowner’s grant, which is an upfront cash payment, for first home buyers, typically in the range of $5,000 to $15,000.

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Getting Pre-Approved

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The most effective way to understand where you stand and what you are going to be able to borrow, along with what exemptions and grants you might be entitled to, is to get a pre-approval.

A pre-approval or conditional approval will clarify how much you will be able to borrow, based on your personal circumstances.

This will make it far easier to start looking at properties, and it should give you the confidence that you can put in a strong offer when the time is right.