The easiest way to secure a three bedroom home loan

You need a deposit between 5% and 20% of the purchase price.

The amount you need depends on which loan structure you choose and whether you're eligible for government support. At the lower end, the Australian Government 5% Deposit Scheme lets eligible first home buyers purchase with just 5% saved, while the Help to Buy scheme requires a minimum 2% deposit if you're purchasing with government equity support. Without these schemes, most lenders expect at least 10% to avoid higher interest rates, and 20% if you want to avoid paying Lenders Mortgage Insurance.

What lenders look at when you apply for a three bedroom home loan

Lenders assess your income, expenses, existing debts and credit history to determine how much you can borrow. They also apply a serviceability buffer, currently 3.0 percentage points above the loan product rate, to make sure you can still afford repayments if rates rise. If you're buying in Frankston, where many three bedroom homes are within reach for buyers on moderate incomes, this buffer can affect your borrowing capacity more than the actual interest rate you'll pay.

Consider a buyer earning $85,000 per year with minimal debts. A lender might assess their capacity to service a loan at a rate of around 6.5% to 7.0%, even if the actual variable rate sits closer to 6.0%. That assessment rate determines the maximum loan amount, not the advertised rate. For this buyer, borrowing capacity might land around $450,000 to $480,000, depending on the lender's policy and any other commitments like car loans or credit cards.

Variable rate, fixed rate or split rate: which suits a three bedroom purchase

A variable rate moves with the market and usually comes with an offset account and the ability to make extra repayments without penalty. A fixed rate locks your repayment amount for a set period, typically one to five years, but limits flexibility. A split rate divides your loan between both structures.

Frankston buyers often choose a variable rate when they expect to make extra repayments or want access to an offset account to reduce interest over time. Fixed rates appeal to buyers who need certainty, particularly if they're stretching their budget to secure a home near the Frankston waterfront or close to schools. A split rate offers both certainty and flexibility, though it adds some complexity when managing repayments and features across two loan portions.

Offset accounts and why they matter when buying in Frankston

An offset account is a transaction account linked to your home loan. Every dollar in the offset reduces the balance on which interest is calculated, which can shorten your loan term or reduce your repayments. If you keep $20,000 in an offset account linked to a $450,000 loan, you're only charged interest on $430,000.

Buyers in Frankston who work in Melbourne or have irregular income from shift work, commission or contract roles tend to benefit most from an offset. You can deposit your salary, build a buffer for rates and repairs, and reduce interest without locking those funds into the loan. Not all loan products include an offset, and some lenders charge a higher interest rate or annual fee for the feature, so it's worth comparing the cost against the benefit based on how much you're likely to keep in the account.

Loan to value ratio and how it affects your interest rate

Your loan to value ratio is the size of your loan as a percentage of the property's value. A loan of $400,000 on a property valued at $500,000 gives you an LVR of 80%. Lenders use this ratio to assess risk. The higher your LVR, the higher the risk, and in many cases, the higher the interest rate.

Most lenders offer their lowest rates to borrowers with an LVR of 80% or below. If you're borrowing with a 90% LVR, you might pay an additional 0.10% to 0.30% on top of the advertised rate, and you'll also need to pay Lenders Mortgage Insurance. LMI is a one-off premium that protects the lender if you default. It's calculated on a sliding scale based on your loan amount and LVR. For a $450,000 loan at 90% LVR, LMI might cost between $10,000 and $15,000, depending on the insurer and lender.

Principal and interest versus interest only repayments

A principal and interest loan requires you to repay both the amount you borrowed and the interest charged. An interest only loan requires you to pay only the interest for a set period, typically one to five years, after which the loan reverts to principal and interest.

Owner occupied home loans are almost always structured as principal and interest from the start. Interest only is more common for investment properties, where the borrower wants to maximise tax deductions and cash flow. If you're buying a three bedroom home in Frankston to live in, lenders expect you to reduce the debt over time. An interest only period might be approved in cases of genuine financial hardship, but it's not a standard feature for owner occupiers and will increase the total interest you pay over the life of the loan.

How pre-approval helps when you're ready to buy

Pre-approval gives you a clear borrowing limit before you start looking at properties. It's not a guarantee, but it confirms a lender is willing to lend you a specific amount based on the information you've provided. Most pre-approvals are valid for three to six months.

In Frankston, where stock can move quickly in certain price brackets, having pre-approval means you can make an offer with confidence. You'll still need a formal valuation and final approval once you've signed a contract, but pre-approval removes much of the uncertainty around how much you can actually borrow. It also signals to real estate agents and vendors that you're a serious buyer, which can matter in a competitive situation.

What happens after you apply

Once you submit a full application, the lender will order a valuation, verify your income and employment, check your credit file and assess the property's suitability as security. The process typically takes between five and ten business days, though it can stretch longer if the lender requests additional documents or if the valuation comes in below the purchase price.

If the valuation is lower than what you've agreed to pay, the lender will base the loan on the lower figure, which increases your LVR and may require a larger deposit. If you're using the 5% Deposit Scheme, both the purchase price and the valuation must sit at or below the applicable price cap for your region. For Frankston, which falls within the Melbourne metro area, the cap is $950,000 for homes and $650,000 for vacant land.

Interest rate discounts and how to access them

Most advertised rates include a discount off the lender's standard variable rate. The size of that discount depends on your LVR, loan amount, and whether you're an owner occupier or investor. Borrowers with a lower LVR and a loan above a certain threshold, often $250,000 or $500,000, typically receive a larger discount.

A broker can help you compare rate discounts across multiple lenders and identify which ones are willing to negotiate further based on your circumstances. Some lenders also offer additional discounts if you hold other products with them, such as a credit card or transaction account, though the value of those discounts should be weighed against any fees or conditions attached.

Call one of our team or book an appointment at a time that works for you. We'll walk through your situation, work out what you can borrow, and help you find a loan structure that fits how you want to manage your money once you've settled into your new home.

Frequently Asked Questions