The Pros and Cons of Buying Your First Home

Buying your first home means choosing between a 5% deposit with no lenders mortgage insurance or a 10% deposit with more lender options.

The choice depends on whether you want immediate access to the property market or prefer flexibility in who you borrow from. Both paths work, but they suit different situations.

The 5% Deposit Route: What You Get and What You Give Up

The Australian Government 5% Deposit Scheme lets you purchase with a 5% deposit and no LMI. Housing Australia guarantees the gap between your deposit and 20% of the property value. The scheme has no income caps and no annual place limits, but you can only apply through one of 31 participating lenders.

In Mount Eliza, where the median house price sits around $1,200,000, the property price cap for the Melbourne region is $950,000. That puts most detached houses out of reach under the scheme, but units and townhouses in the area often fall within the limit. You would need a $47,500 deposit for a $950,000 property, plus settlement costs.

The trade-off is lender choice. Not every lender participates in the scheme, and those who do may have different credit policies, interest rate pricing, and loan features compared to the broader market. Some of the major banks are on the panel, but so are 28 non-major lenders. If you want a particular offset account structure or a specific rate discount, you might find it with one participating lender but not another.

Consider a buyer who works in hospitality with variable income. They qualify for the scheme based on their deposit and property choice, but the first participating lender they approach declines the application due to income stability concerns. A second participating lender on the panel approves the loan, but at a rate 0.30% higher than the buyer initially expected. The buyer proceeds because avoiding LMI saves them around $28,000, but they are now locked into a loan that costs more over time than they planned.

That is the reality of working within a closed panel. You gain access to the market sooner, but your ability to shop around is constrained by who participates and how each lender assesses your situation.

The 10% Deposit Option: More Lenders, More LMI

A 10% deposit opens up the entire lending market. You can approach any lender, compare home loan options across major banks and smaller lenders, and negotiate on rate, features, and service. The cost is LMI, which is calculated as a percentage of the loan amount and varies by lender and deposit size.

For a property at the Melbourne regional cap of $950,000, a 10% deposit would be $95,000. LMI on a $855,000 loan with a 10% deposit typically falls between $20,000 and $30,000 depending on the lender and your income profile. That premium is usually capitalised into the loan, so you do not pay it upfront, but it increases the total amount you borrow and the interest you pay over the life of the loan.

The advantage is choice. If one lender offers a 0.40% better rate, that difference can outweigh the LMI cost over a few years. You also get access to lenders who may have more flexible credit policies for self-employed buyers, those with recent credit history issues, or applicants with non-standard income sources.

Some buyers combine a 10% deposit with a family guarantee, where a parent or close relative uses equity in their own property to support the loan. This can reduce or eliminate LMI without needing to save a larger deposit, but it requires the guarantor to take on legal and financial responsibility until the guarantee is released. It works well in families where the guarantor has substantial equity and a clear exit plan, but it adds complexity to the transaction and requires independent legal advice for the guarantor.

Stamp Duty in Victoria: What First Home Buyers Actually Pay

Victoria offers a full stamp duty exemption on properties up to $600,000 and a sliding concession on properties between $600,001 and $750,000. Above $750,000, standard duty rates apply.

For a $700,000 townhouse in Mount Eliza, the concession reduces duty to around $9,870 instead of the standard $38,470. That saves $28,600, which can be redirected toward your deposit or settlement costs. For a $950,000 property, no concession applies and full duty of approximately $55,370 is payable.

The concession applies to both new and established homes, provided the property will be your principal place of residence. It does not stack with schemes like Help to Buy, which has its own property price caps and equity contribution structure, but it works alongside the Australian Government 5% Deposit Scheme.

In our experience, buyers in Mount Eliza who are purchasing close to the $750,000 threshold often adjust their search slightly to stay within the concession range. A property listed at $780,000 might be negotiated down to $750,000, which flips the buyer from paying full duty to receiving a partial concession. That negotiation can save more than $10,000 in duty, which is a meaningful reduction when you are managing deposit and settlement costs at the same time.

Fixed or Variable: The Rate Decision That Follows You

Once you have worked out your deposit and duty position, the next decision is whether to lock in a fixed rate or stay variable. A fixed rate gives you certainty over repayments for a set period, typically one to five years. A variable rate moves with the market, which means your repayments can rise or fall depending on what the Reserve Bank does.

At current variable rates, a $855,000 loan over 30 years might cost around $5,200 per month in repayments. If rates drop by 0.50%, that repayment falls to around $4,900. If rates rise by 0.50%, it climbs to around $5,500. Fixed rates remove that uncertainty, but they also remove flexibility. Most fixed loans restrict extra repayments, and if you want to refinance or sell before the fixed term ends, break costs can apply.

An offset account, which is standard with most variable loans but rare with fixed loans, lets you park your salary and savings in a linked account and reduce the interest charged on your loan without making extra repayments. For buyers who receive irregular income or want the option to access funds later, the offset structure offers more control than a fixed loan with a redraw facility.

Some buyers split their loan between fixed and variable to get partial certainty and partial flexibility. That structure works if you want to lock in part of your repayment but keep an offset account active on the variable portion. The split does add complexity when refinancing, as each portion may have different terms, break costs, and discharge processes.

The First Home Owner Grant: Where It Applies and Where It Doesn't

Victoria offers a $10,000 first home buyer grant for new homes valued up to $750,000. The grant does not apply to established homes, so if you are buying an existing townhouse or unit in Mount Eliza, you will not receive it.

A new home is defined as a dwelling that has not been previously occupied or sold as a place of residence. It includes house and land packages, newly constructed apartments, and substantially renovated homes where the renovation cost exceeds a specified threshold. Off-the-plan purchases that meet the new home criteria are eligible, provided the contract is signed while the property is still under construction or not yet titled.

For buyers looking at new developments in the Mornington Peninsula region, the grant provides an additional $10,000 toward your deposit or settlement costs. That can be the difference between needing a 7% deposit and a 5% deposit, which in turn affects whether you can access the 5% Deposit Scheme or need to save more before you can proceed.

The grant is applied for through your lender or conveyancer at settlement. You do not need to apply separately to the State Revenue Office, but you do need to meet the residency requirements, which include living in the property as your principal place of residence for at least 12 months starting within 12 months of settlement.

Pre-Approval: Why Timing Matters More Than You Think

Pre-approval is a conditional loan offer based on your financial position and the type of property you intend to buy. It tells you how much a lender is prepared to lend before you sign a contract, and it gives you a clear budget when you start looking at properties.

Most pre-approvals are valid for three to six months, depending on the lender. If your financial circumstances change during that time, such as a job change, new credit commitments, or a drop in income, the lender can withdraw or adjust the offer. Pre-approval is not a guarantee, but it does give you a realistic view of borrowing capacity before you commit to a purchase.

In Mount Eliza, where stock can move within days of listing, having pre-approval means you can make an offer without a finance clause or with a shorter finance period, which makes your offer more appealing to vendors. Buyers without pre-approval often include a 14-day finance clause, which gives them time to apply for a loan after signing the contract. Vendors typically prefer offers with shorter or no finance clauses, especially in a market where multiple buyers are competing.

Pre-approval also exposes issues before you are under contract. If your income does not support the price range you are targeting, or if your existing debts limit your borrowing capacity, you find out at the pre-approval stage rather than after you have signed and paid a deposit. That gives you time to adjust your search, reduce debts, or explore options like adding a co-borrower.

What Happens After You Sign the Contract

Once you sign a purchase contract, the formal home loan application process begins. Your lender will require property valuation, pest and building inspections if applicable, and final verification of your income, employment, and deposit source. If you are using a gift from a family member to boost your deposit, the lender will need a signed statutory declaration confirming the funds are a gift and not a loan.

The cooling-off period in Victoria is three business days for most residential property purchases, but it does not apply to auction sales. If you change your mind during the cooling-off period, you can withdraw from the contract, but you forfeit 0.2% of the purchase price as a penalty.

Settlement typically occurs 30 to 90 days after the contract is signed, depending on what you negotiate with the vendor. During that time, your lender processes the full loan application, the valuer inspects the property, and your conveyancer or solicitor handles title searches, contract reviews, and final settlement statements.

If the valuation comes in below the purchase price, the lender will only approve a loan based on the lower valuation figure. You would need to make up the difference with additional deposit or renegotiate the purchase price with the vendor. Valuation shortfalls are less common in stable markets, but they do occur when buyers pay above recent comparable sales or when the property has unique features that do not translate into valuation support.

Call one of our team or book an appointment at a time that works for you. We will walk through your deposit options, confirm what grants and concessions apply to your situation, and arrange pre-approval so you can move when the right property comes up.

Frequently Asked Questions