Understanding the Basics of First Home Buyer Mistakes

Most buyers who apply for their first home loan make at least one decision they later wish they could reverse.

The error is usually not dramatic. It might be locking in a rate structure that no longer suits their circumstances three years later, or underestimating the cost of settlement by several thousand dollars. Sometimes it is ignoring the difference between pre-approval and unconditional finance, or assuming that all lenders treat casual income the same way. In Albert Park, where properties near the foreshore or close to Bridport Street attract a premium, the financial stakes are higher than in many other Victorian suburbs. A miscalculation that might be absorbed elsewhere can mean the difference between proceeding and withdrawing.

Applying Without Confirming Your Borrowing Capacity

Your borrowing capacity is the maximum amount a lender will approve based on your income, expenses, and existing debts. Most buyers search for properties before confirming this figure, then discover they are approved for less than the suburb median. In Albert Park, where established homes typically trade above the state average, this creates a gap that cannot be closed by adjusting the deposit alone.

Consider a buyer earning $95,000 annually who begins inspecting two-bedroom apartments near Canterbury Road. They assume a 10% deposit will be sufficient. After submitting an application, the lender's serviceability calculation accounts for existing personal loan repayments, HECS debt, and a credit card limit of $15,000. The approved amount falls $80,000 short of the properties they have been viewing. The buyer then faces a choice: look in a different area, increase household income, or reduce committed expenses before reapplying. Each option delays settlement by months.

Lenders assess your capacity differently. Some apply higher interest rate buffers when calculating serviceability. Others treat overtime or commission income more conservatively. Knowing where you sit before you begin attending auctions removes uncertainty.

Misunderstanding Stamp Duty Concessions and Grants

Victoria offers a full stamp duty exemption on properties up to $600,000 and a sliding concession from $600,001 to $750,000 for eligible first home buyers. The First Home Owner Grant of $10,000 applies only to new homes valued up to $750,000. These concessions do not apply automatically. You must meet residency requirements, occupy the property as your principal place of residence, and not have a relevant prior property interest.

Buyers frequently assume the exemption applies to investment purchases or that the grant is available on established homes. It is not. A buyer purchasing an apartment in Albert Park for $720,000 as an investment property pays full stamp duty of approximately $38,000. The same buyer, purchasing the same property as an owner-occupier and meeting all eligibility criteria, pays a reduced amount under the concession. The difference is significant enough to affect settlement funding.

Another common error is double-counting. A buyer calculates their deposit, then adds the $10,000 grant to their available funds, forgetting that the grant applies only to new builds. When the property they are purchasing is established, the grant does not form part of their settlement funds. The shortfall appears days before settlement, usually requiring family assistance or withdrawal from the contract.

Overlooking Lenders Mortgage Insurance When Using a Low Deposit

Lenders Mortgage Insurance is a cost charged when your deposit is below 20% of the property value. It protects the lender if you default, not you. The premium is calculated based on the loan-to-value ratio and can range from a few thousand dollars to over $30,000 on higher-value properties. Most buyers add the premium to the loan amount rather than paying it upfront. This increases both the loan size and the interest paid over the life of the loan.

The Australian Government 5% Deposit Scheme removes the need for Lenders Mortgage Insurance by having Housing Australia guarantee the difference between your deposit and 20% of the property value. No income caps apply, and the scheme is now uncapped in terms of annual places. Property price caps do apply. In Melbourne, the cap is $950,000. Albert Park properties near the beach or with period features often exceed this threshold, making the scheme unavailable unless you are purchasing a smaller apartment or a property requiring renovation.

If you are using a 10% deposit and do not qualify for the scheme, Lenders Mortgage Insurance will apply. On a property valued at $850,000 with a 10% deposit, the premium may be $18,000 to $22,000 depending on the lender. This amount is not trivial. It also does not reduce if you make extra repayments or if property values rise. Understanding whether your purchase qualifies for the scheme, or whether you will be paying the premium, should occur before you sign a contract.

Choosing the Wrong Interest Rate Structure

Fixed and variable rates serve different purposes. A fixed rate locks in your repayment amount for a set period, usually one to five years. A variable rate moves with market conditions and often includes features such as an offset account or the ability to make unlimited extra repayments. Most buyers choose one or the other based on what feels safer at the time, without considering how their circumstances might change.

In our experience, buyers who fix their entire loan often regret the decision when they want to make lump sum repayments or exit the loan early. Fixed rate loans typically do not allow extra repayments beyond a small annual threshold, and breaking the loan before the fixed term ends can trigger break costs in the tens of thousands of dollars. A buyer who fixes a $750,000 loan at the start of a falling rate cycle and then wants to refinance 18 months later to take advantage of lower rates may face break costs of $25,000 or more.

A split structure, where part of the loan is fixed and part remains variable, offers more flexibility. The variable portion can accommodate extra repayments and provide access to an offset account, while the fixed portion provides some repayment certainty. This structure is not always suggested by lenders unless you ask for it.

Underestimating Settlement Costs Beyond the Deposit

The deposit is not the only upfront cost. Settlement costs include conveyancing fees, building and pest inspections, loan application fees, property valuation fees, and sometimes strata report fees if you are purchasing an apartment. In Albert Park, where many buyers are purchasing period homes or strata-titled properties near the foreshore, these costs can exceed $15,000.

Buyers who calculate their savings based solely on the deposit often realise one week before settlement that they are $8,000 short. Borrowing additional funds from family or increasing the loan amount at the last moment is possible, but it delays settlement and sometimes jeopardises the contract. Conveyancing fees alone typically range from $1,800 to $3,000 depending on the complexity of the transaction. If you are purchasing an apartment with an owners corporation, the strata report may cost another $250 to $400. A building inspection for a period home can be $600 to $900. These amounts do not include council rates adjustments, water rates adjustments, or moving costs.

Planning for these expenses at the same time you calculate your deposit ensures you have sufficient funds in your account when the settlement statement is issued. Assuming the deposit is the only cost you need to cover is one of the more common miscalculations we see, and it is one of the more easily avoided.

If you are purchasing in Albert Park and want to confirm your borrowing position, understand which concessions apply to your situation, or structure a home loan that suits your circumstances beyond settlement, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions