Nobody teaches you how to buy a house. You finish school knowing about Pythagoras and mitochondria, but not about LMI, LVR, or how a 0.5% rate difference can cost you $50,000. The mortgage process is full of jargon that seems designed to confuse first-timers — so here is the stuff you actually need to know, in plain language.

House keys on a keychain, symbolising the milestone of purchasing your first home

Step 1: Saving Your Deposit

Most lenders want at least 5% of the property's value as a minimum deposit, but 20% is the real target. The difference between 5% and 20% is not just a bigger number — it changes the entire cost structure of your loan.

If you borrow more than 80% of the property's value (meaning your deposit is less than 20%), you will almost certainly need to pay Lenders Mortgage Insurance (LMI). LMI protects the lender (not you) if you default on the loan, and it can cost anywhere from a few thousand dollars to tens of thousands depending on your loan size and deposit percentage.

For a $600,000 property with a 10% deposit ($60,000), LMI could cost around $8,000 to $12,000. With a 20% deposit ($120,000), you avoid LMI entirely. That is a significant saving.

Practical Tips for Saving Faster

  • Set a specific target and deadline. Know exactly how much you need and by when. Break it into monthly milestones.
  • Automate transfers on payday so the money moves before you can spend it. Our guide on automating your savings covers the setup.
  • Use a high-yield savings account — the difference between 0.5% and 5% on a $60,000 deposit is real money.
  • Follow the 50/30/20 budget rule and funnel at least 20% of your income into your deposit fund.
  • Temporarily cut discretionary spending. It is not forever — just until you hit your deposit target.

Step 2: Understanding Government Schemes

The Australian government offers several schemes designed to help first home buyers get into the market. These can make a real difference, so make sure you are aware of what is available.

First Home Owner Grant (FHOG)

Most states and territories offer a one-off grant to eligible first home buyers, typically for new builds or substantially renovated properties. The amount varies by state -- for example, $10,000 in New South Wales for new homes under $600,000, or $10,000 in Victoria for homes up to $750,000. Check your state government's website for current eligibility criteria and amounts, as these change periodically.

First Home Guarantee (formerly First Home Loan Deposit Scheme)

This federal government scheme allows eligible first home buyers to purchase a property with as little as 5% deposit without paying LMI. The government guarantees up to 15% of the property value, effectively making up the gap between your deposit and the 20% threshold. Since October 2025, the scheme offers unlimited places with no income caps -- check the Housing Australia website for current eligibility criteria and property price caps in your area.

First Home Super Saver Scheme (FHSSS)

The FHSSS lets you make voluntary contributions to your superannuation fund and then withdraw them (plus associated earnings) to put toward your first home deposit. The tax benefits can help you save your deposit faster, as contributions are taxed at only 15% rather than your marginal tax rate. You can contribute up to $15,000 per year and $50,000 in total.

Stamp Duty Concessions

Most states offer stamp duty exemptions or reductions for first home buyers. For example, in New South Wales, first home buyers pay no stamp duty on properties up to $800,000. In Victoria, the exemption applies to properties up to $600,000 with a concession for properties up to $750,000. These thresholds and rules vary significantly by state, so check your local rules.

Step 3: Getting Pre-Approval

Before you start seriously house-hunting, get pre-approval (also called conditional approval) from a lender. Pre-approval tells you how much you can borrow and gives sellers confidence that you are a serious, qualified buyer.

What You Need for Pre-Approval

  • Proof of identity (passport, driver's licence)
  • Proof of income (pay slips, tax returns, employment letters)
  • Bank statements (typically three months)
  • Details of your assets and liabilities (savings, debts, credit cards)
  • A summary of your living expenses

Pre-approval typically lasts 60 to 90 days. It is not a guarantee of final approval -- the lender will still need to assess the specific property you want to buy -- but it gives you a clear budget range and speeds up the process when you find the right place.

How Much Can You Actually Afford?

Lenders will tell you the maximum you can borrow, but that is not necessarily the amount you should borrow. Be honest about what you can comfortably afford. Consider your monthly repayments if interest rates rise by 2-3%, factor in ongoing property costs (rates, insurance, maintenance), and leave room for life's other expenses.

Use our mortgage calculator to test different loan amounts and see what the repayments look like.

Step 4: Understanding LMI

As mentioned earlier, Lenders Mortgage Insurance is a significant cost for anyone borrowing more than 80% of the property's value. Here is what you need to know:

  • LMI protects the lender, not you. If you default on your loan, LMI covers the lender's losses. You still owe the debt.
  • It is a one-off cost (though you can have it added to your loan, in which case you pay interest on it for the life of the loan).
  • The cost depends on your LVR and loan amount. A higher LVR (smaller deposit) means higher LMI. On a $600,000 loan with a 10% deposit, LMI might be $8,000 to $12,000.
  • It can be avoided with a 20% deposit, or through government schemes like the First Home Guarantee.
  • Consider whether paying LMI is worth it. Sometimes paying LMI to get into the market sooner makes sense if property prices are rising faster than you can save. Other times, waiting and saving a larger deposit is the smarter move.

Step 5: Choosing the Right Loan

With pre-approval in hand, you need to decide on the type of loan. The main decisions are:

Fixed vs Variable Rate

A fixed rate gives you certainty -- your repayments will not change for the fixed period. A variable rate gives you flexibility -- make extra repayments, use an offset account, and benefit if rates drop. Many first home buyers prefer the certainty of a fixed rate while they settle into mortgage repayments. Read our detailed comparison of fixed vs variable rate mortgages to decide.

Loan Features

Key features to consider include:

  • Offset account: An offset account can save you thousands in interest. Read our full guide on offset accounts.
  • Redraw facility: Allows you to access any extra repayments you have made if needed
  • Extra repayment flexibility: The ability to make additional payments without penalty is crucial if you want to pay off your mortgage early
  • Loan portability: Lets you transfer your loan to a new property if you move, without refinancing

Comparison Rate

Always compare loans using the comparison rate, not just the headline interest rate. The comparison rate includes most fees and charges, giving you a more accurate picture of the true cost. A loan with a low advertised rate but high fees can end up costing more than a slightly higher rate with minimal fees.

Common First Home Buyer Mistakes

  1. Borrowing the maximum amount. A lender approving you for $700,000 is not a recommendation to borrow $700,000. Leave yourself a buffer — rates can rise, and unexpected costs always appear.
  2. Forgetting the extras. Stamp duty (if applicable), conveyancing, building and pest inspections, moving costs, and day-one repairs can easily add 3-5% to the purchase price. Budget for it upfront or get caught out.
  3. Skipping the building and pest inspection. Saving $500 on inspections is a false economy. Structural issues or termite damage discovered after settlement can cost tens of thousands — and at that point, they are your problem.
  4. Choosing a loan on rate alone. Features like offset accounts and extra repayment flexibility often save more over the life of the loan than a 0.1% rate difference. Compare the full package.
  5. Draining every cent into the deposit. You still need an emergency fund. A hot water system failure in week three of owning a home is expensive on a credit card. Keep a cash buffer separate from your deposit — see our guide on building an emergency fund.

Putting It All Together

The process boils down to: save a strong deposit, understand the true costs (not just the purchase price), get pre-approval so you know your budget, and pick a loan based on features and total cost — not the headline rate.

Ask questions. Lenders and mortgage brokers answer the same "dumb" questions dozens of times a week — they expect them. The only expensive question is the one you did not ask before signing.

Use our mortgage calculator to see what repayments look like at different loan amounts and rates. It makes the numbers concrete instead of abstract.