10 First Home Buyer Mistakes Australians Make (and How to Avoid Them)

Mistake 1: Not Knowing Your True Borrowing Capacity Before You Start Looking

Many first home buyers spend months going to open homes before they have any idea what a lender will actually give them. When they finally apply, they discover their borrowing capacity is well below what they assumed — and every property they fell in love with is out of reach.

Under APRA's serviceability guidelines, lenders must assess your ability to repay at your actual interest rate plus a 3% buffer. In 2026, with variable rates sitting around 6.0–6.5%, that means your income is stress-tested at roughly 9–9.5%. This buffer exists to protect you, but it also means your borrowing power may be considerably lower than a simple back-of-the-envelope calculation suggests.

Before you attend a single inspection, use our Borrowing Power Calculator to get a realistic ceiling. Plug in your income, existing debts, and living expenses, and you will instantly see the maximum loan a lender is likely to approve under the APRA buffer. This one step can save you months of heartbreak.

Mistake 2: Underestimating Upfront Costs

The deposit is the number most first home buyers focus on, but it is only one part of a much larger upfront cost picture. Many buyers arrive at settlement and are shocked to discover they are short on cash.

Beyond the deposit, you typically need to budget for stamp duty (or confirm your exemption), conveyancing and legal fees ($1,500–$3,000), building and pest inspections ($400–$800), mortgage registration fees, lender application fees, and moving costs. These extras can easily add $15,000–$30,000 to your initial outlay.

The good news is that state-based concessions can dramatically reduce or even eliminate stamp duty for eligible buyers. In NSW, first home buyers pay zero stamp duty on properties up to $800,000. In QLD, eligible buyers of new builds receive a $30,000 First Home Owner Grant (FHOG). Use our First Home Buyer Calculator to see exactly what stamp duty you owe (or save) in your state and to get a full picture of every upfront cost you need to cover.

Mistake 3: Saving a 20% Deposit When You Don't Have To

There is a persistent myth that you must save a full 20% deposit before buying. Waiting for 20% in a market rising faster than most people can save is a strategy that has locked many Australians out of ownership entirely.

The federal government's First Home Guarantee allows eligible buyers to purchase with as little as a 5% deposit, with the government guaranteeing the remaining 15% so you avoid paying Lenders Mortgage Insurance (LMI). The scheme now has unlimited places and no income caps following the October 2025 expansion.

LMI typically costs $10,000–$30,000 on a $650,000 loan at 10% deposit. Whether to pay LMI or wait for a bigger deposit depends on your personal circumstances and how fast property prices are moving in your target area. Use our LMI Calculator to calculate the exact LMI cost at different deposit levels and make an informed decision rather than guessing.

Mistake 4: Choosing the Wrong Home Loan

Not all home loans are equal, and many first home buyers simply go with the first loan their bank offers. The difference between an average rate and a competitive rate on a $650,000 loan can amount to well over $100,000 in additional interest over a 30-year term.

Key things to compare beyond the advertised rate include the comparison rate (which factors in fees), whether the loan allows offset accounts, whether you can make extra repayments without penalty, and whether you are locked into a fixed rate during a period when rates may fall.

Run the numbers on your specific loan with our Mortgage Calculator before you sign anything. A 0.5% difference on a $650,000 loan adds up to roughly $1,999 per year — that is nearly $60,000 over the life of the loan.

Mistake 5: Ignoring the Power of an Offset Account

An offset account is a transaction or savings account linked to your mortgage. The balance in that account is "offset" against your loan balance, meaning you only pay interest on the difference. It is one of the most powerful tools available to Australian mortgage holders and one that first home buyers routinely overlook.

For example, if you have a $650,000 mortgage and $30,000 sitting in your offset account, you only pay interest on $620,000. Over a 30-year term, even a modest average offset balance of $20,000 can save you $60,000–$80,000 in interest and cut years off your loan. Use our Offset Account Calculator to see precisely how much your savings balance could save you — the results are often surprising.

Mistake 6: Skipping Building and Pest Inspections

This is one of the most expensive mistakes a buyer can make. Building and pest inspections cost $400–$800, which feels like a lot when you are already stretched. But discovering undisclosed structural defects, termite damage, or serious water ingress after settlement — when it is fully your problem — can cost $50,000 or more to fix.

Always make your offer subject to a satisfactory building and pest inspection, or obtain the reports before bidding at auction if possible. A good inspector will also highlight minor maintenance issues and give you a clearer picture of what the property will cost you to maintain over time.

Mistake 7: Not Accounting for Ongoing Costs in Your Budget

First home buyers are often so focused on getting into the property that they fail to model what owning it will actually cost month to month. Council rates, strata fees (if buying an apartment), building insurance, contents insurance, water rates, maintenance, and eventual capital works all add up fast.

A realistic rule of thumb is to budget 1–2% of the property's value annually for maintenance and repairs alone. On a $700,000 property, that is $7,000–$14,000 per year — or $583–$1,167 per month on top of your mortgage repayment. Use our Budget Calculator to map your full monthly financial picture — income, mortgage, ongoing property costs, and living expenses — so you know exactly how comfortable things will be before you commit.

Mistake 8: Buying in the Wrong Location for the Wrong Reasons

Emotion is the enemy of good property decisions. Many first home buyers overpay for a suburb they love, or buy in a location that suits their lifestyle now but not their life in three to five years.

Before committing, research the suburb's infrastructure plans, school catchments if relevant, distance to employment hubs, rental yield data (relevant if you ever need to rent it out), and historical price growth. The most liveable suburb is not always the best investment, and the best investment area is not always where you want to live. Take time to separate the emotional decision from the financial one.

Mistake 9: Missing Out on Available Government Grants and Schemes

Australia has a surprisingly generous range of first home buyer assistance programs at both the federal and state level, and many buyers either do not know they exist or miss the eligibility window by purchasing the wrong type of property.

At the federal level, the First Home Guarantee (5% deposit, no LMI, unlimited places, no income caps from October 2025), the Family Home Guarantee (2% deposit for single parents), and the Help to Buy shared equity scheme (launched December 2025) are all worth investigating. At the state level, the First Home Owner Grant provides up to $30,000 in QLD for new builds, $10,000 in NSW and VIC, and $15,000 in SA — but most grants only apply to new builds, not established properties.

Use our First Home Buyer Calculator to see exactly what you are entitled to, including stamp duty concessions broken down by state, in one place — no sign-up needed. See our full guide to first home buyer grants by state for the complete breakdown.

Mistake 10: Stretching Your Budget to Its Absolute Limit

Borrowing the maximum the bank will lend you is a strategy that leaves no room for the unexpected — a rate rise, a job loss, a medical bill, a car that needs replacing. Australia experienced 13 consecutive cash rate rises between May 2022 and November 2023, and borrowers at the edge of their capacity faced severe financial stress.

A conservative approach is to aim for monthly repayments that represent no more than 28–30% of your gross household income, leaving breathing room for rate rises and life events. If the only way to buy in your preferred suburb requires you to borrow right up to your maximum assessed capacity, it may be worth reconsidering the location or property type — or waiting six to twelve months to grow your deposit further.

Run different scenarios — different loan amounts, different rates, different terms — with our Mortgage Calculator to find a repayment level you can genuinely sustain even if the RBA moves rates upward again.

Frequently Asked Questions

• How much deposit do I need to buy my first home in Australia in 2026?

  The minimum deposit for most lenders is 5% of the property purchase price. With the federal government's First Home Guarantee, eligible buyers can purchase with a 5% deposit without paying Lenders Mortgage Insurance. However, putting down at least 10–20% reduces your loan size, your monthly repayments, and the total interest you pay over the life of the loan.

• What is the First Home Owner Grant (FHOG) in Australia?

  The First Home Owner Grant is a one-off payment from state governments to eligible first home buyers purchasing or building a new home. The amount varies by state — it is $10,000 in NSW and VIC, $30,000 in QLD, and $15,000 in SA as of 2026. Most grants only apply to new builds or off-the-plan purchases, not established properties. Each state also has its own income and property price caps, so check eligibility carefully before you buy.

• Do first home buyers pay stamp duty in Australia?

  It depends on your state and the purchase price. In NSW, first home buyers are exempt from stamp duty on properties up to $800,000 and receive a concession between $800,000 and $1,000,000. VIC exempts first home buyers under $600,000. QLD exempts under $550,000. Western Australia, South Australia, and the ACT have their own thresholds and concession structures. Use our Stamp Duty Calculator or First Home Buyer Calculator to get the exact figure for your state and price.

• What is Lenders Mortgage Insurance (LMI) and can I avoid it?

  LMI is insurance that a lender takes out to protect themselves if you default on a loan with less than 20% deposit. Despite what many people assume, LMI protects the lender — not the borrower. The cost is passed on to you, and on a $650,000 loan with a 10% deposit, LMI typically adds $10,000–$18,000 to your upfront or capitalised loan costs. You can avoid LMI by saving a 20% deposit, accessing the federal First Home Guarantee (5% deposit with government-backed LMI waiver), or having a family member act as guarantor on your loan.

• What is the APRA serviceability buffer and how does it affect first home buyers?

  APRA requires lenders to assess whether borrowers can still repay their loan if interest rates were to rise by 3 percentage points above the current rate. If you are taking out a loan at 6.2%, the bank stress-tests your repayments at 9.2%. This reduces how much you can borrow relative to your income and is one of the main reasons buyers find their approved loan amount lower than expected.

• How long does it take to buy a home as a first home buyer in Australia?

  From starting your property search to settling on a property, first home buyers typically take 6 to 18 months. This includes time to save the deposit, get pre-approval (2–4 weeks), find and bid on a suitable property (highly variable), exchange contracts, and complete the settlement period (usually 4–6 weeks after exchange). Getting your finances in order and pre-approval done early is the single biggest time-saver in the process.

Written by

Sarah Mitchell CFA

Investment Analyst & CFA Charterholder

Sarah is a CFA charterholder based in Sydney with 11 years of experience in superannuation, managed funds, and investment portfolio analysis across Australian equity and fixed-income markets.

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