Beginner's Guide to First Home Buyer Mistakes

The biggest mistake most people make when buying their first home happens before they even look at a property. They assume their savings are enough without understanding what lenders actually need to see.

Borrowing too much, missing out on government concessions, and choosing the wrong loan structure can all cost you thousands of dollars. The decisions you make in the months before you apply shape what you can borrow, what you pay in duty, and how comfortable your repayments will be once you settle.

Treating Every Dollar in Your Account as Usable Deposit

Lenders require genuine savings, which means money you have saved over at least three months and can verify through statements. Lump sums that appear suddenly, tax refunds, or cash deposits without a clear source usually do not count toward your deposit unless they meet specific criteria such as a documented gift from a family member.

Consider a buyer who had $40,000 in their account but $15,000 came from selling a car two weeks earlier. The lender counted only the portion that had been sitting in the account for longer than 90 days, leaving them short of the 5% deposit required under the Australian Government 5% Deposit Scheme. They needed to either wait another two months or find another $8,000 in verified savings before proceeding.

Gift deposits are acceptable with most lenders if they come from immediate family and are accompanied by a statutory declaration confirming the funds are a gift, not a loan. Without that paperwork, the lender treats the deposit as borrowed funds, which can reduce your borrowing capacity or disqualify you from certain low deposit schemes.

Applying for Credit During the Pre-Approval Process

Your borrowing capacity is assessed based on your income, expenses, and existing debts at the time the lender reviews your application. Opening a new credit card, buying a car on finance, or even increasing the limit on an existing card changes your serviceability and can reduce what you are approved to borrow.

In one scenario, a buyer received pre-approval for $520,000 and then financed a car for $25,000 while waiting for the right property. When they found a home and submitted a full application, their borrowing capacity had dropped to $480,000. The deal fell through because the purchase price exceeded what the lender would now approve.

Lenders assess credit commitments based on the limit, not the balance. A credit card with a $10,000 limit costs you roughly $30,000 to $40,000 in borrowing capacity even if the card has a zero balance. If you do not need the card, close it before you apply.

Not Checking First Home Buyer Eligibility Before You Buy

Eligibility for first home buyer stamp duty concessions and grants depends on the price of the property, the type of home, your residency status, and whether you have owned property before. These rules vary between states, and getting one detail wrong can cost you tens of thousands of dollars in duty or disqualify you from a grant.

In New South Wales, you receive a full stamp duty exemption on properties up to $800,000 and a partial concession up to $1,000,000. In Queensland, the concession applies up to $700,000 for established homes and there is no price cap on new builds. If you are buying on the Central Coast, you are subject to New South Wales rules, which means a property purchased at $950,000 would attract a partial concession, while the same property across the border in Queensland might be treated differently.

The First Home Owner Grant in New South Wales applies only to new homes or substantially renovated properties valued under $600,000 for a completed home or $750,000 for a land and build contract. If you buy an established home, you are not eligible for the grant regardless of price. Many buyers assume the grant applies to any property if they meet the residency and ownership criteria, but the property type matters just as much.

Choosing the Wrong Loan Structure for Your Situation

A variable rate with an offset account gives you flexibility to make extra repayments and access those funds when needed. A fixed rate locks in your repayment amount for a set period but usually restricts how much extra you can pay and does not offer an offset. Many first home buyers fix their entire loan without understanding what they are giving up.

If you expect to receive irregular income such as bonuses, tax refunds, or gifts, an offset account lets you park that money and reduce the interest charged without locking it away. If your income is steady and you prefer certainty over flexibility, a fixed rate might suit you. Splitting your loan between fixed and variable gives you some protection against rate rises while keeping access to offset and redraw on the variable portion.

Some lenders charge higher rates or fees on loans with offsets, and others do not offer offset accounts at all. If that feature matters to you, it should be part of the conversation when you compare home loan options.

Skipping Pre-Approval or Treating It as a Formality

Pre-approval tells you what you can borrow based on your current financial position and gives you confidence to make an offer. It is not a guarantee, but it does mean a lender has reviewed your income, expenses, credit history, and deposit and confirmed you meet their criteria.

Buyers who skip this step often find a property, go unconditional, and then discover the lender will not approve the amount they need. Pre-approval also identifies problems such as missing documents, undisclosed debts, or insufficient savings while you still have time to fix them. The process usually takes a few days to a week depending on how quickly you provide documents and whether the lender needs further information.

Pre-approval is typically valid for three to six months depending on the lender. If your financial situation changes during that time, such as a change in employment, new debts, or a drop in income, you need to update the lender before you make an offer.

Underestimating What Settlement Will Actually Cost

Buyers focus on the deposit and forget about the other costs that are due at or before settlement. These include conveyancing fees, building and pest inspections, loan establishment fees, valuation fees, and government charges. Even with stamp duty concessions, you should expect to set aside several thousand dollars beyond your deposit.

Conveyancing usually costs between $1,200 and $2,500 depending on the complexity of the transaction and the location. Building and pest inspections cost around $500 to $800 combined. If you are borrowing more than 80% of the property value and not using a government guarantee scheme, you will also pay Lenders Mortgage Insurance, which can run into the thousands and is usually added to your loan balance rather than paid upfront.

If you are using a scheme such as the Australian Government 5% Deposit Scheme, you do not pay Lenders Mortgage Insurance, but all other costs still apply. Some buyers scrape together the minimum deposit and then struggle to cover settlement, which can delay or derail the purchase.

Ignoring Your Actual Living Costs When You Set a Budget

What you can borrow and what you can comfortably afford to repay are not the same number. Lenders assess serviceability using a standard expense benchmark, but your real spending might be higher depending on your lifestyle, dependents, and other commitments.

If you are currently paying $450 a week in rent and a mortgage repayment would be $650 a week, you need to find an extra $200 in your budget. That means cutting discretionary spending, reducing subscriptions, or increasing your income. Many buyers adjust their spending after they settle and find it harder than expected, especially if rates rise or their circumstances change.

Before you commit to a purchase price, calculate the repayment at a rate that is at least 1% to 2% higher than the current rate. If you cannot afford the repayment at that higher rate, consider borrowing less or waiting until your income increases. A borrowing capacity assessment helps you understand the upper limit of what a lender will approve, but it is up to you to decide what feels sustainable.

Call one of our team or book an appointment at a time that works for you. We will review your situation, check your eligibility for applicable schemes and concessions, and make sure your loan structure fits your circumstances before you start looking.