Proven tips to buy a townhouse as a first home buyer

What makes a townhouse different when you're applying for a home loan

A townhouse sits somewhere between an apartment and a house when it comes to your loan application. You'll own the building, but you'll share some common property with neighbours, which means lenders look at both the property itself and the body corporate records before saying yes.

In our experience, buyers in Merrylands are drawn to townhouses because they offer more space than an apartment without the full cost or maintenance of a freestanding house. Many of the complexes near Merrylands Station and along Woodville Road give you two or three bedrooms, a small courtyard, and sometimes a single garage. When a lender reviews your application, they'll ask for the body corporate financials to check that the complex is well-managed and that there are no major levies coming. If the body corporate has low funds or a history of special levies, the lender may pull back on how much they're willing to offer, or in some cases, decline the property altogether.

Consider a buyer who found a two-bedroom townhouse near Memorial Avenue for $650,000. The property itself was in good condition, but the body corporate statement showed a shortfall in the sinking fund and a planned roof repair that would require a $12,000 special levy per owner within six months. The lender flagged the levy as a risk and reduced the approved loan amount, which meant the buyer had to renegotiate with the seller or walk away. In the end, they negotiated a lower sale price to account for the upcoming cost, and the loan was approved at the revised figure.

How much deposit do you actually need

You can buy a townhouse with a deposit as low as 5% if you qualify for the First Home Guarantee. This federal program removes the need to pay Lenders Mortgage Insurance when you're borrowing more than 80% of the property value, which can save you thousands.

Without the guarantee, you'll typically need a 10% deposit plus enough to cover stamp duty and settlement costs. In New South Wales, eligible first home buyers don't pay stamp duty on properties under $800,000, which covers most townhouses in Merrylands. If the property is over that threshold, you'll pay a reduced rate up to a certain point. You still need to budget for conveyancing, building and pest inspections, and any body corporate fees that are due at settlement.

Some lenders will accept part of your deposit as a genuine gift from a parent or close relative. The gift needs to come with a signed letter confirming it's not a loan and doesn't need to be repaid. If you're planning to use gifted funds, mention it early in your home loan application so the broker can structure everything correctly from the start.

Fixed or variable interest rate for a townhouse loan

There's no difference between a townhouse loan and a house loan when it comes to the interest rate structure. You'll choose between a fixed rate, a variable rate, or a split.

A fixed rate locks in your repayment amount for a set period, usually between one and five years. If you want certainty and you're budgeting tightly, this can take the guesswork out of your monthly expenses. The downside is that you'll usually lose access to an offset account during the fixed period, and if you want to pay extra or refinance before the term ends, you may be charged break costs.

A variable rate moves with the market. Your repayments will go up or down depending on what the Reserve Bank does and how your lender responds. The benefit is flexibility: you can make extra repayments without penalty, and you'll usually have access to an offset account, which can reduce the interest you pay over time.

A split loan gives you both. You might fix half your loan for three years and leave the other half variable. This approach balances stability with flexibility, and it's popular with buyers who want some protection from rate rises but don't want to lock themselves in completely.

What the body corporate report tells your lender

Every townhouse complex has a body corporate, sometimes called an owners corporation or strata. Before a lender approves your loan, they'll ask to see a copy of the body corporate records. These documents show how much money is in the sinking fund, what levies are charged each quarter, and whether there are any disputes or planned works.

Lenders want to see a healthy sinking fund and consistent levy payments. If the fund balance is low or if owners are behind on their contributions, it raises a red flag. A lender might decide the complex is poorly managed and refuse to lend against it, or they might reduce the amount they're willing to offer.

In a scenario where a buyer wanted to purchase a unit in a complex off Paton Street, the body corporate report showed that the strata had recently voted to replace the common area fencing at a cost of $40,000, split across twenty lots. Each owner would be liable for $2,000 within sixty days of settlement. The lender included this liability in the buyer's serviceability calculation, which reduced their borrowing capacity slightly. The buyer was still approved, but they needed to show they had enough savings to cover both the special levy and their usual living expenses.

NSW first home buyer concessions and how they apply to townhouses

If you're buying a townhouse in New South Wales and you meet the eligibility criteria, you'll pay no stamp duty on properties valued under $800,000. Most townhouses in Merrylands sit comfortably under that threshold, which can save you around $20,000 to $30,000 compared to what a non-first-home buyer would pay.

The $10,000 New South Wales First Home Owner Grant only applies to new homes or house and land packages valued under certain limits, so it won't be available if you're buying an existing townhouse. The stamp duty saving is the main benefit for established properties.

You can combine the stamp duty concession with the First Home Guarantee, which means you could buy with a 5% deposit and no stamp duty if the property is under $800,000. This combination makes a townhouse in Merrylands within reach for buyers who have saved $30,000 to $40,000 and have steady income.

Pre-approval and why it matters when you're looking at townhouses

Getting pre-approval before you start attending open homes gives you a clear number to work with. You'll know how much you can borrow, what your repayments will look like, and whether the lender has any concerns about your income or credit history.

Pre-approval usually lasts between three and six months, depending on the lender. It's not a guarantee, because the lender will still need to assess the specific property you choose, but it removes most of the uncertainty from your side of the transaction.

When you find a townhouse you want to buy, your broker will send the contract of sale and the body corporate documents to the lender for final approval. If everything checks out, you'll move to formal approval and then settlement. If the lender spots an issue with the body corporate or the property valuation comes in lower than the sale price, you may need to renegotiate or increase your deposit.

What happens if the property valuation comes in under the sale price

Lenders order an independent valuation once you've signed the contract. If the valuer decides the property is worth less than what you've agreed to pay, the lender will base your loan amount on the lower figure.

As an example, if you're buying a townhouse for $680,000 and the valuation comes back at $660,000, the lender will treat the purchase price as $660,000. If you were planning to borrow 95%, you'll now need to make up the $20,000 shortfall with your own savings, or renegotiate the sale price with the seller.

This doesn't happen often in Merrylands because the market is fairly stable and most properties sell close to their true value, but it's worth knowing that it's a possibility. Having a small buffer in your savings can help if you end up in this situation.

Choosing the right loan features for your situation

An offset account sits alongside your home loan and reduces the interest you're charged each month. If you have $10,000 in your offset and you owe $600,000 on your loan, you'll only pay interest on $590,000. It's one of the most useful features if you're disciplined with your savings and you want to pay off your loan faster.

A redraw facility lets you access any extra repayments you've made on your loan. If you pay an extra $5,000 over the course of a year, you can redraw that money if you need it for an emergency or a planned expense. Some lenders charge a fee for redraws, and others limit how often you can access the funds, so check the terms before you sign.

Not every loan offers both features. If you're fixing your interest rate, you'll usually lose access to an offset during the fixed period, and your ability to make extra repayments will be capped. If flexibility is important to you, a variable loan with an offset account is usually the right choice.

What to do next

If you're looking at townhouses in Merrylands and you're not sure where you stand with a deposit or how much you can borrow, call one of our team or book an appointment at a time that works for you. We'll walk through your situation, check what concessions and schemes you're eligible for, and put together a loan structure that fits your budget and your plans.

Frequently Asked Questions