Guide to 10 Types of Home Loans for First-Time Buyers in Sydney

Thinking about buying your first home in Sydney? With so many types of home loans available, it’s important to understand your options to make the right choice. 

A home loan, or mortgage, is what helps most Australians step onto the property ladder, so exploring the best options is essential in Sydney’s competitive market. As experienced mortgage brokers based in North Sydney, we work with first-time buyers to compare loans, meet lending criteria, and choose the right option that helps save borrowers’ time, money, and stress.

Let’s dive into the 10 most common types of home loans and how brokers can assist first-time buyers. 

Overview of Home Loans in Sydney

A home loan, also known as a mortgage, is a financial product that allows individuals to purchase a property without having to pay the full amount upfront. Instead, a lender—usually a bank or financial institution—provides the funds for the purchase, and the borrower repays the amount over a set period, along with interest.

For first-time buyers in Sydney, understanding how home loans work is the key to taking that first step onto the property ladder. 

Home loans are not just about borrowing money—they come with different features and options designed to suit a range of financial needs and personal circumstances. From flexible repayment types to additional features like offset accounts, choosing the right loan can set the foundation for a successful homeownership journey.

Sydney Property Market: Insight Into First-Time Buyer Mortgages

Sydney’s property market remains one of the most competitive in Australia, with a median house price of $1.44 million and apartments around $800,000 as of late 2024 (CoreLogic). 

The Northern Beaches continues to attract buyers for its coastal lifestyle, with house prices averaging $2.5 million in suburbs like Manly and Dee Why.

For first-time buyers in Sydney and the Northern Beaches, new opportunities are emerging. Projections for 2025 suggest federal and state programs, such as the NSW Shared Equity Scheme and the expanded First Home Guarantee, will help reduce deposit requirements and stamp duty costs, making it easier to enter the market. 

Analysts also expect interest rates to steady in 2025, potentially lowering borrowing costs and creating a more balanced market. After years of sharp property growth (averaging 4.8% annually over the past decade), Sydney’s market is stabilising, presenting an ideal chance for new buyers. 

Rising rental costs, which increased 7.3% year-on-year (SQM Research), are further encouraging renters to explore homeownership as a more cost-effective option. Sydney, including the Northern Beaches, remains a desirable location for its strong property value growth, demand for housing, and proximity to high-paying jobs.

In the next section, we’ll explore the types of home loans available to first-time buyers in Sydney and how brokers can help you find the right one for your goals.

10 Types of First-Time Buyer Home Loans Brokers Can Assist With

Finding the right home loan can be tricky, but that’s where brokers step in. They simplify the process, explain your options, and ensure you’re matched with a mortgage that fits your needs. 

Here are 10 types of home loans for first-time buyers that brokers can assist you with to make homeownership easier.

#1 Standard Variable Rate Home Loan

A variable-rate home loan has an interest rate that changes with market conditions, offering flexibility. With rates averaging 6.25% p.a. (2024) and expected to stabilise in 2025, these loans may become more appealing for first-time buyers in Sydney, especially those comfortable with fluctuating repayments and potential rate reductions.

Benefits for First-Time Buyers:

• Flexibility to make extra repayments without penalties.
• Opportunity to save if rates drop.
• Option to refinance easily if needed.

Key Considerations:

• Monthly repayments can increase if rates go up.
• Budgeting becomes less predictable.

Example: Sarah, a first-home buyer on the Northern Beaches, opted for a variable-rate loan to benefit from potential rate drops. She used an offset account to save on interest, reducing her mortgage repayments significantly.

#2 Fixed Rate Home Loan

A fixed-rate home loan locks in your interest rate for a specific period, usually between 1-5 years, offering stability and predictability. With this option, your monthly repayments remain consistent, no matter how interest rates fluctuate in the market. 

This makes it an ideal choice for first-time buyers who value certainty and want to plan their budget without worrying about unexpected rate increases.

Why It’s Beneficial:

• Stability for budgeting.
• Protection from rate increases during the loan term.

Cons to Consider:

• Limited flexibility (penalties for early repayments).
• No benefit from rate drops.

In Sydney, fixed rates currently range from 5.79% to 6.39% p.a. If you prefer certainty, this is a great choice.

#3 Split Rate Home Loan

A split-rate home loan offers the advantages of both fixed and variable interest rates in a single loan. One portion of the loan has a fixed interest rate, providing stability and predictable repayments, while the other portion is on a variable rate, allowing flexibility and the potential to benefit from interest rate drops. 

This option is ideal for borrowers who want the security of fixed repayments but also want to take advantage of features like extra repayments or rate reductions on the variable portion.

Why Choose This?

• Predictable repayments on the fixed portion.
• Flexibility and potential savings on the variable portion.

Example:

Jack, a first-time buyer, split his $750,000 loan into 50% fixed and 50% variable. This gave him repayment stability while allowing additional repayments on the variable portion.

#4 Low Deposit Home Loan

A low deposit home loan lets buyers enter the market sooner with as little as a 5%-10% deposit, though it may require Lenders Mortgage Insurance (LMI) to protect the lender. While LMI adds to costs, government schemes like the First Home Guarantee can help eligible buyers avoid it, making this option popular for first-time buyers.

What You Need to Know:

• Government schemes like the First Home Guarantee allow eligible buyers to avoid LMI with just a 5% deposit.
• Many lenders, including Bank Australia and Bendigo Bank, offer low-deposit options.

Tip: Check your eligibility for a stamp duty concession or exemption under the NSW First Home Buyer Assistance Scheme to reduce upfront costs.

#5 Guarantor Home Loan

A guarantor home loan lets a family member or guardian use their property as collateral, helping you buy with a smaller deposit. It’s ideal for single applicants or young buyers who may struggle to save, as it can eliminate the need for Lenders Mortgage Insurance (LMI) and reduce upfront costs. However, the guarantor’s property is at risk if repayments aren’t made.

Why It’s Attractive:

• No need for a large deposit.
• Avoid paying LMI.

Risks:

• The guarantor’s property is at risk if you default.
• Strains family relationships in case of financial trouble.

#6 Offset Account Home Loan

An offset account is linked to your home loan, reducing the interest charged by subtracting your savings from the loan balance. The more savings you have, the less interest you pay. It’s a great option for reducing loan costs while keeping access to your funds for daily expenses or emergencies.

How It Works:

• If you have $20,000 in your offset account and a $500,000 loan, you’ll only pay interest on $480,000.

Why It’s Great for First-Time Buyers:

• Significant interest savings.
• Easy access to your funds.

#7 Interest-Only Home Loan

An interest-only home loan lets you pay just the interest for 1-5 years, lowering repayments temporarily. This can help first-time buyers manage cash flow or short-term financial challenges. While often used for investment properties, it can suit owner-occupiers expecting their finances to improve, but higher repayments after the interest-only period must be planned for.

Pros:

• Lower repayments during the interest-only period.
• Frees up cash for other expenses.

Cons:

• You’re not reducing the loan balance.
• Higher repayments after the interest-only period ends.

#8 Low-Doc Home Loan

A low-documentation loan is designed for self-employed buyers or those with irregular incomes who can’t meet traditional requirements. Instead of payslips, borrowers provide documents like bank statements or tax returns to prove income. While it helps freelancers and small business owners access financing, it often comes with stricter criteria or higher interest rates.

Why It’s Useful:

• Flexible credit criteria.
• Access to financing for buyers without standard income documentation.

Considerations:

• Higher interest rates.
• Stricter conditions from lenders.

#9 Construction Loan

A construction loan is for buyers building a new home or renovating. Funds are released in stages as construction progresses, and during this phase, only interest is paid. Once complete, the loan converts to a standard home loan.

Why It’s Useful: 

• Suits house and land packages or vacant land.
• Interest-only repayments during construction.
• Eligible for First Home Owner Grant (FHOG).
• Build a home tailored to your needs.

Considerations: 

• Requires detailed building contracts and approvals.
• Additional fees: inspections and valuations.
• Higher deposit (10%-20%) may be needed.
• Repayments increase after construction ends.

#10 Shared Equity Loan (Government-Backed)

The NSW Shared Equity Scheme is a government initiative that helps eligible buyers, such as single parents, older Australians, and key workers, purchase a home by co-owning it with the government. 

Under this scheme, the government contributes up to 40% of the purchase price for new homes or 30% for existing properties, significantly reducing the amount buyers need to borrow. 

This option lowers upfront costs and ongoing repayments, making homeownership more achievable for those who might otherwise struggle to enter Sydney’s competitive property market.

Who Qualifies?

• Australian citizens or permanent residents.
• Buyers meeting income limits and other eligibility requirements.

This option significantly reduces your loan deposit and mortgage repayments, making homeownership more achievable.

Bonus: Government Schemes and Incentives for First-Time Buyers

If you’re buying your first home in Sydney, several government schemes are designed to make homeownership more affordable:

1. First Home Owner Grant (FHOG):

• The First Home Owner Grant provides a $10,000 grant for eligible buyers purchasing or building a new home valued at up to $750,000 in NSW.
• A great option for those building on vacant land or buying a house and land package.

2. First Home Buyer Assistance Scheme (FHAS):

• Reduces or eliminates stamp duty for eligible buyers.
• Applies to properties under certain price caps, such as $1.5 million for Sydney homes.

3. First Home Guarantee (FHG):

• Allows eligible buyers to purchase with just a 5% deposit without paying Lenders Mortgage Insurance (LMI).
• Available for new and existing homes, making it ideal for buyers with lower savings.

4. First Home Super Saver Scheme (FHSS):

• Allows first-time buyers to save for a house deposit using voluntary contributions to superannuation.
• Enables buyers to withdraw up to $50,000 of these savings for their first home.

These programs can significantly reduce upfront costs and make it easier for first-time buyers to enter Sydney’s competitive property market. Check eligibility requirements carefully to maximise your savings and take advantage of these opportunities.

FAQs

What is the best type of home loan for first-time buyers?

The best loan depends on your financial situation. Fixed loans offer stability, while variable loans provide flexibility.

How much deposit do I need to buy a home in Sydney?

Typically, you need at least 5%-20% of the purchase price.

Can I qualify for a home loan with a low income?

Yes, low-income earners may qualify for loans through Family Home Guarantee or other government schemes.

What is the 2% deposit scheme in NSW?

The Family Home Guarantee allows eligible single parents in NSW to buy a home with as little as a 2% deposit, with the government guaranteeing up to 18% of the property price to avoid LMI.

What loan do most first-time home buyers use?

Most first-time buyers use a standard variable rate home loan or a low deposit loan, often paired with government schemes like the First Home Guarantee.

What are first-home buyers entitled to in NSW?

First-home buyers in NSW are entitled to benefits like stamp duty exemptions or concessions, the First Home Owner Grant (FHOG), and access to the First Home Guarantee for low-deposit purchases.

Conclusion

Buying your first home is a big step, and choosing the right home loan is essential to making the process smoother and more rewarding. Whether you're looking to purchase in the Northern Beaches or anywhere across Sydney, we’re here to help. 

Based in North Sydney, our team of experienced mortgage brokers specialises in guiding first-time buyers through the loan process and helping you access government schemes that can save you time and money.

We offer a free consultation to discuss your options, compare loans, and ensure you’re matched with the best solution for your circumstances. Call us today at 0403 316 686 or visit Mortgage Brokers Northern Beaches to take the first step toward owning your dream home!