Smart ways to approach your first home purchase

Buying your first home starts with knowing what you need to have ready before you begin looking at properties.

You need savings that cover your deposit, stamp duty, and settlement costs. You need to understand which government schemes you qualify for. You need to know your borrowing capacity and whether lenders will approve you at that level. Each piece builds on the other, and doing them in the wrong order wastes time.

Working out what you can actually borrow

Your borrowing capacity is the amount a lender will approve based on your income, expenses, existing debts, and the size of your deposit. A buyer earning $95,000 a year with minimal debt and a 10% deposit will borrow more than someone earning the same amount with a car loan and regular buy-now-pay-later payments. Lenders assess your income after tax, subtract your living expenses and any debt repayments, then apply a buffer to make sure you can still afford the loan if rates rise. The buffer varies between lenders but usually sits around 3% above the current rate.

Consider a couple earning a combined $140,000 with $80,000 saved. They have no debts and modest monthly expenses. Their borrowing capacity sits around the level needed to purchase in Western Sydney suburbs where current median prices allow entry with that deposit size. If the same couple carried a $15,000 car loan and owed $8,000 across two credit cards, their borrowing capacity would drop, even though their income stayed the same. That reduction might push them out of their preferred suburb or require them to save a larger deposit.

Borrowing capacity changes as your financial position changes. Paying down debts, reducing discretionary spending, or increasing your deposit all improve what lenders will offer.

Building your deposit and covering upfront costs

Your deposit is the portion of the purchase price you pay upfront. Most lenders require at least 5% of the property value as a genuine deposit, meaning savings you have held for at least three months. Gifts from family members can form part of your deposit, but lenders will require a signed declaration confirming the money does not need to be repaid.

Stamp duty in New South Wales is a separate cost paid at settlement. First home buyers purchasing a property valued up to $800,000 pay no stamp duty. A sliding concession applies to properties valued between $800,001 and $1,000,000. Once the property value reaches $1,000,000, you pay full stamp duty. Settlement costs include conveyancing fees, building and pest inspections, loan establishment fees, and title registration. These typically add several thousand dollars to what you need at settlement.

If your deposit is less than 20% of the property value, lenders usually require you to pay Lenders Mortgage Insurance. LMI protects the lender if you default on the loan. It does not protect you. The cost depends on your deposit size and loan amount. A buyer purchasing with a 10% deposit will pay more LMI than someone purchasing with a 15% deposit, even if the loan amount is identical.

Government schemes that reduce deposit or duty costs

The Australian Government 5% Deposit Scheme allows eligible buyers to purchase with a 5% deposit without paying LMI. Housing Australia guarantees the difference between your deposit and 20% of the property value. In New South Wales, the price cap is $1,500,000 for properties in Sydney and designated regional centres, and $800,000 for other areas. Applications are made through participating lenders, not directly through Housing Australia. You can combine this scheme with the New South Wales stamp duty exemption if your property value sits within both thresholds.

The First Home Owner Grant in New South Wales provides $10,000 for buyers purchasing or building a new home valued up to $600,000, or a house and land package valued up to $750,000. The grant does not apply to established homes. You must move into the property within 12 months of settlement and live there for at least 12 continuous months.

The First Home Super Saver Scheme lets you make voluntary super contributions and later withdraw them to use as a deposit. Concessional contributions are taxed at 15% rather than your marginal rate, which can help you save faster if you are on a higher income. The total you can withdraw is capped at $50,000. You need an ATO determination before signing a purchase contract, so start the process early.

When to apply for pre-approval and what it actually covers

Pre-approval gives you a conditional loan offer before you find a property. It tells you the amount a lender will lend based on your current financial position. Most pre-approvals last 90 days. If your circumstances change during that period, the lender can withdraw or reduce the approval.

Getting loan pre-approval before you attend auctions or make offers shows sellers and agents you can settle. In competitive Sydney suburbs, sellers often prefer buyers who have finance ready over those who need to arrange it after signing. Pre-approval is not a guarantee. The lender will still assess the property you choose and confirm your financial position has not changed before issuing final approval.

You need recent payslips, tax returns if you are self-employed, bank statements showing your savings history, and details of any debts or ongoing financial commitments. Lenders check your credit file as part of the assessment. Late payments, defaults, or multiple credit applications in a short period will affect your approval.

Choosing loan features that suit your repayment approach

A variable rate loan allows you to make extra repayments without penalty and usually includes an offset account. An offset account is a transaction account linked to your loan. The balance in the offset reduces the interest you pay without locking the money away. If you have $20,000 in your offset and a $500,000 loan, you only pay interest on $480,000.

A fixed rate loan locks your interest rate for a set period, usually between one and five years. You know exactly what your repayments will be during that time. Most fixed rate loans limit extra repayments to around $10,000 per year. If you break the loan early, you may be charged break costs. These can be substantial if rates have fallen since you fixed.

Some buyers split their loan, fixing part and leaving part variable. A buyer with a $600,000 loan might fix $400,000 for three years and leave $200,000 variable. The fixed portion provides repayment certainty. The variable portion allows flexibility for extra repayments and access to an offset account.

Structuring your application to avoid delays at settlement

Lenders assess your income, expenses, debts, credit history, and the property you want to buy. Incomplete documentation is the most common reason applications slow down. Missing payslips, unsigned tax returns, or unclear explanations for deposits into your savings account all create delays.

If you are purchasing with a partner, both applicants need to provide full documentation. If one of you is self-employed, expect the lender to request two years of tax returns, business financials, and a letter from your accountant. If you have casual or contract income, lenders usually require at least 12 months of consistent earnings.

Changes to your financial position between pre-approval and final approval can affect your application. Taking on new debt, changing jobs, or making large unexplained withdrawals from your savings will prompt the lender to reassess. Keep your financial position stable once you have applied.

Knowing what happens between contract and settlement

Once your offer is accepted or you win at auction, you enter into a binding contract. The settlement period is usually four to six weeks. During this time, your lender finalises their assessment of the property, your conveyancer prepares the legal documents, and you arrange building and pest inspections if they were not completed before signing.

Your lender will order a valuation to confirm the property is worth what you are paying. If the valuation comes in lower than the purchase price, the lender may reduce the loan amount or require you to increase your deposit. This is more common in markets where prices are rising quickly or where properties sell well above comparable sales.

Your conveyancer will conduct title searches, review the contract, and liaise with the seller's legal representative. You need to have your deposit, stamp duty, and settlement costs ready to transfer on settlement day. Once settlement completes, the property is legally yours and you can collect the keys.

Call one of our team or book an appointment at a time that works for you. We will review your financial position, explain which home loan options suit your situation, and walk you through each step from application to settlement.

Frequently Asked Questions