Everything You Need to Know About Your First Home Loan

Understanding Your Deposit and LMI Requirements

Your deposit size determines whether you pay Lenders Mortgage Insurance. Any loan where you borrow more than 80% of the property value will attract LMI, which is a one-off premium added to your loan or paid upfront to protect the lender if you default.

Consider a first home buyer in South Perth purchasing near the Swan River foreshore. At South Perth's current median price point, a 10% deposit would trigger LMI, adding several thousand dollars to the upfront cost. A 20% deposit avoids LMI entirely but requires significantly more saved capital. The Australian Government 5% Deposit Scheme removes this trade-off for eligible buyers by providing a guarantee to the lender, meaning you can purchase with just 5% down and no LMI premium. The property price cap in Perth is $850,000 for this scheme, which covers most entry-level properties in South Perth and surrounding suburbs.

The scheme is administered through participating lenders, not through Housing Australia directly. Not every lender is on the panel, so your choice of lender may be limited if you want to use the guarantee. Applications are assessed on standard serviceability criteria, so the 5% deposit does not mean automatic approval. You still need to demonstrate capacity to service the loan at a rate at least 3.0 percentage points above the actual home loan interest rate, which is the buffer all regulated lenders must apply under APRA policy.

Variable, Fixed, or Split Rate Structure

You need to choose whether your interest rate will move with the market, stay locked for a set period, or combine both approaches. A variable rate gives you flexibility to make extra repayments without penalty and access features like an offset account, but your repayment amount will change as rates move. A fixed rate locks your repayment for one to five years, which can provide certainty during the early years of ownership, but you lose the flexibility to pay down the loan faster and may face break costs if you sell or refinance before the fixed term ends.

A split loan divides your borrowing between variable and fixed portions. In a scenario where you borrow with 10% of the purchase price as your deposit, you might fix 50% of the loan amount for three years to stabilise half your repayment, and leave the other 50% on a variable rate with an offset account. This allows you to park savings in the offset to reduce the interest charged on the variable portion, while still holding rate certainty on the fixed half. The split structure does not reduce your interest rate, but it does give you access to both stability and flexibility at the same time.

Principal and Interest vs Interest Only Repayments

Most owner-occupied home loans are structured as principal and interest from day one. Each repayment covers the interest cost for that period plus a portion of the amount you borrowed, so your loan balance reduces over time. Interest-only repayments are occasionally used by owner occupiers in specific circumstances, such as during construction or where short-term cash flow is constrained, but the standard approach for a first home purchase is to repay both principal and interest from settlement.

Interest-only loans do not build equity through repayments. The only equity gain comes from property value growth. After the interest-only period ends, your loan reverts to principal and interest, and your repayment amount will increase significantly because the remaining term is shorter. For a first home buyer, the principal and interest structure is almost always more appropriate. It builds equity from the first repayment and keeps your loan on track to be repaid within the agreed term.

How Offset Accounts Reduce Interest Without Extra Repayments

An offset account is a transaction account linked to your home loan. The balance in the offset is subtracted from your loan balance when calculating interest, so if you have a loan amount of $400,000 and $15,000 sitting in a linked offset, you only pay interest on $385,000. The offset balance is fully accessible, so you can deposit your salary, pay bills, and withdraw funds as needed without restriction.

Offset accounts are available on variable rate loans and sometimes on the variable portion of a split loan, but rarely on fixed rate products. The interest saved through an offset is not taxed because you are not earning interest, you are simply reducing the interest charged on the loan. For first home buyers who receive irregular income, bonuses, or tax refunds, the offset allows you to reduce interest cost immediately without locking those funds into the loan as extra repayments.

Help to Buy and Shared Equity Contribution

Help to Buy is a separate scheme where the Australian Government takes an equity share in your property in exchange for contributing up to 40% of the purchase price for a new home or up to 30% for an existing home. You need a minimum 2% deposit, and income limits apply. For the current financial year, individual applicants must have an income of $103,000 or less, and joint applicants or single parents must have a combined income of $165,000 or less, based on the most recent ATO Notice of Assessment.

The government's equity share is proportional. If the government contributes 30% of the purchase price and the property increases in value by $50,000, the government is entitled to 30% of that gain when you sell or buy them out. The same applies if the property falls in value. You are not charged rent or interest on the government's share, but you do need to buy the government out eventually, either when you sell or through refinancing to a standard loan once your equity position improves.

Help to Buy cannot be combined with the 5% Deposit Scheme, so you need to choose one or the other. State and territory stamp duty concessions and grants can generally be used alongside either scheme, though restrictions vary depending on the jurisdiction and the specific program.

What South Perth Buyers Should Know About Serviceability

Serviceability assessment determines how much you can borrow based on your income, existing debts, and living expenses. Every regulated lender must assess your capacity to service the loan at an interest rate at least 3.0 percentage points above the actual rate offered. This buffer was introduced to ensure borrowers can continue to meet repayments if rates rise.

In South Perth, where many first home buyers are purchasing apartments or older-style units near Angelo Street or Mends Street, body corporate fees can be significant and must be included in your expense assessment. Lenders treat strata levies as a fixed ongoing cost, which reduces your borrowing capacity in the same way a car loan or personal loan would. If you are considering a property with quarterly levies above $1,500, factor that into your pre-approval discussions, as it will directly affect the loan amount a lender is willing to offer.

Debt-to-income limits also now apply to all authorised deposit-taking institutions. From 1 February 2026, each lender can only write 20% of their new owner-occupier loans to borrowers with a total debt-to-income ratio of six times or greater. If your income is $80,000 and you are seeking to borrow $480,000 or more, you fall into that category. This does not mean you cannot borrow that amount, but it does mean the lender may apply additional scrutiny or require a larger deposit to keep the loan within their risk settings.

Pre-Approval and Conditional Approval Timeframes

Pre-approval gives you an indication of how much you can borrow before you make an offer on a property. It is not a guarantee, but it does confirm that a lender has assessed your income, debts, and credit history and is willing in principle to lend a specific amount. Most home loan pre-approval assessments are valid for three to six months, depending on the lender.

Conditional approval is a stronger form of pre-approval where the lender has reviewed most of your supporting documents and confirmed they will lend, subject to valuation and final checks. If you are buying in a competitive area such as South Perth, where properties near the zoo or the foreshore can attract multiple offers, having conditional approval in place before you attend an auction or make an offer gives you certainty that finance will not delay settlement.

You can apply for pre-approval through a broker who has access to multiple lenders, or directly with a single lender. A broker can compare loan products across the panel and identify which lenders are most likely to approve your application based on your employment type, deposit size, and the property you intend to purchase.

Western Australian Stamp Duty Concessions for First Home Buyers

In Western Australia, the First Home Owner Rate provides a full duty exemption on homes valued up to $430,000, phasing out at $530,000. A full exemption also applies to vacant land valued up to $300,000, with a phase-out at $400,000. For transactions from 21 March 2025, broader concessions apply up to $700,000 in the Perth Metropolitan and Peel regions and up to $750,000 outside those regions.

South Perth falls within the Perth Metropolitan area, so the $700,000 threshold applies. If you purchase an established home at or below that value and meet the eligibility criteria, the duty saving can be substantial. The First Home Owner Grant of $10,000 is available only for new homes, with a property value cap of $750,000 south of the 26th parallel. Established homes in South Perth do not attract the grant, but the duty concession alone can save several thousand dollars depending on the purchase price.

These concessions apply at settlement and are claimed through your settlement agent. You do not need to apply separately, but you do need to confirm your eligibility before exchange of contracts, as the concession is only available if you have not previously owned property and you intend to occupy the home as your principal place of residence.

Choosing Between New and Established Property

New properties attract the First Home Owner Grant in Western Australia, but they are often priced higher than comparable established homes due to builder margins and the cost of inclusions. Established properties in South Perth, particularly older-style apartments and villas near the river or within walking distance of the South Perth train station, may offer a lower entry price but do not qualify for the grant.

The trade-off is between upfront cost and immediate condition. A new property typically requires no maintenance in the first few years and may come with builder warranties, but you pay a premium at purchase. An established property may need cosmetic updates or repairs, but the lower purchase price can offset those costs and leave you with more equity from day one if you buy well.

Your loan structure does not change based on whether the property is new or established, but your borrowing capacity may be affected if the property requires immediate capital works. Lenders will not include renovation costs in a standard purchase loan unless you apply for a construction or renovation loan, which has a different approval process and drawdown structure.

What Happens If Your Circumstances Change Before Settlement

Lenders issue formal approval based on your circumstances at the time of application. If your employment, income, or debts change before settlement, you are required to notify the lender immediately. A change in employment is the most common issue. If you move to a new employer after approval but before settlement, the lender will reassess your application and may require a new employment contract, payslips, and confirmation that any probation period does not affect your job security.

Taking on new debt, such as a car loan or personal loan, after your home loan is approved can also affect your capacity to settle. The lender will usually run a final credit check shortly before settlement, and any new debt that was not disclosed at the time of approval may result in the loan being withdrawn or the amount reduced.

If you are purchasing in South Perth and settlement is several weeks away, avoid making any major financial decisions without discussing them with your broker or lender first. This includes changing jobs, applying for credit, or making large cash withdrawals that could affect your savings verification.

Call one of our team or book an appointment at a time that works for you to discuss your borrowing capacity and the loan structure that suits your circumstances.

Frequently Asked Questions