How much can I borrow?
Borrowing capacity depends on income, expenses, existing debts, dependants and individual lender policy.
First Home Buyers
Buying Your First Home
Buying your first property can involve unfamiliar lending rules, deposits, government assistance, contracts and upfront costs. Understanding the process before you start looking can make the purchase much easier to manage.
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Where should a first home buyer start?
The first step is usually to understand your financial position before committing to a property.
That means looking at your available deposit, income, expenses, existing debts, borrowing capacity and the additional costs involved in purchasing a property.
It can also be useful to understand which government assistance programs, guarantees, concessions or exemptions may be available before deciding how much deposit you actually need.
The main questions to answer before you buy
A first home purchase becomes much easier to plan once you understand these core numbers.
How much deposit do I have?
Your available savings help determine the price range, loan-to-value ratio and lenders that may be suitable.
What purchase costs will I need?
The deposit is only one part of the funds required. Legal costs, inspections, government charges and other expenses may also need to be allowed for.
Am I eligible for assistance?
Government guarantees, grants, stamp-duty concessions or other assistance may be available depending on eligibility and location.
What repayment can I comfortably afford?
The maximum amount a lender may approve is not necessarily the amount you will want to borrow.
Do I need pre-approval?
Pre-approval can help establish a realistic purchasing range before you begin making offers.
How much deposit do you need?
There is no single deposit requirement that applies to every first home buyer.
The amount required can depend on the lender, property value, loan-to-value ratio, available government assistance and whether lenders mortgage insurance applies.
Some buyers aim for a 20% deposit because this can avoid lenders mortgage insurance with many lenders. However, eligible buyers may be able to purchase with a smaller deposit depending on their circumstances and the lending options available.
The important calculation is the total amount of funds required to complete the purchase, not simply the percentage deposit.
Where can your deposit come from?
Lenders may look at both the amount of the deposit and where the funds came from.
Personal savings
Money accumulated through regular savings is commonly used towards the deposit and purchase costs.
Gift from family
Some lenders may accept gifted funds from family, subject to their documentation and policy requirements.
Government assistance
Eligible first home buyers may be able to use government guarantees, grants or other assistance as part of their purchase strategy.
Existing assets
The sale of investments or other acceptable assets may contribute towards the required funds.
Family guarantee
In some circumstances, a family member may provide additional property security to assist with the purchase rather than contributing cash.
Other acceptable funds
Different lenders may accept different sources of funds, so the deposit strategy should be checked before committing to a property.
What are genuine savings?
Some lenders require borrowers to demonstrate that part of their deposit has been genuinely saved or held for a period of time.
The exact definition varies between lenders. Savings accounts, term deposits and some other financial assets may be acceptable, while recently borrowed money may be treated differently.
Not every first home buyer transaction requires the same genuine-savings evidence, particularly where government support or family assistance is involved. This is one area where lender policy can make a significant difference.
Government assistance for first home buyers
First home buyer assistance can include several different types of support. Eligibility rules and availability can change, so current requirements should always be checked before relying on a particular program.
Government loan guarantees
Eligible buyers may be able to purchase with a smaller deposit where a government guarantee supports part of the lender's risk.
First home owner grants
Depending on the state or territory and the type of property being purchased, a grant may be available to eligible buyers.
Stamp-duty concessions
Some first home buyers may receive a transfer-duty exemption or concession depending on property value and local rules.
Shared-equity programs
Some government programs may allow eligible buyers to purchase with government participation in part of the property's equity.
What is lenders mortgage insurance?
Lenders mortgage insurance, commonly called LMI, may apply when the amount borrowed is high relative to the property's value.
LMI generally protects the lender rather than the borrower. It can sometimes allow a buyer to purchase with a smaller deposit, but the premium can add a meaningful cost to the transaction.
Depending on the lender and loan structure, the LMI premium may sometimes be added to the loan rather than being paid completely from the buyer's available cash.
Costs to allow for beyond the deposit
One of the most common first home buyer mistakes is focusing on the deposit while overlooking the other costs required to complete the purchase.
Stamp duty or transfer duty
The amount depends on the state or territory, property value and whether any first home buyer concession applies.
Solicitor or conveyancer
Legal assistance is generally required to review the contract and complete the transfer and settlement process.
Building and pest inspections
These may identify structural, maintenance or pest issues before the purchase becomes unconditional.
Loan and valuation fees
Application, valuation or settlement costs may apply depending on the lender and product.
Lenders mortgage insurance
LMI may apply where the loan-to-value ratio exceeds the lender's threshold.
Moving and ownership costs
Moving expenses, insurance, rates, strata costs and initial maintenance should also be considered.
How much should you actually borrow?
There can be an important difference between how much a lender is prepared to approve and how much you are comfortable borrowing.
A lender's assessment considers whether the loan meets its serviceability requirements. Your personal budget may need to allow for other priorities such as travel, childcare, future renovations, reduced working hours or simply maintaining a comfortable financial buffer.
It can therefore be useful to consider both borrowing capacity and the repayment level that fits your lifestyle.
What affects borrowing capacity?
Different lenders use different assessment methods, which means borrowing capacity can vary.
Income
Salary, overtime, bonuses, commissions and other income may be treated differently between lenders.
Existing debts
Credit cards, personal loans, car finance and student debt can reduce borrowing capacity.
Living expenses
Lenders assess regular household and lifestyle expenses when determining serviceability.
Dependants
The number of financially dependent family members can affect the assessment.
Interest-rate buffer
Lenders generally assess the proposed loan using a rate higher than the actual interest rate.
Lender policy
Two lenders can produce different borrowing results from the same information.
What is home loan pre-approval?
Pre-approval is generally a conditional indication from a lender that it may be prepared to lend up to a particular amount based on the information assessed at that time.
It can help establish a realistic property price range and provide greater confidence when making an offer.
Pre-approval is not the same as unconditional approval. The lender will usually still need to assess the property, confirm that the information provided remains current and satisfy any outstanding lending conditions.
Why pre-approval can be useful
Pre-approval can help make the buying process more structured, particularly for someone purchasing property for the first time.
Know your price range
It can help prevent spending time looking at properties that are outside a realistic lending range.
Understand your deposit position
You can identify how much of your available funds may be required for the deposit and purchase costs.
Identify lender issues early
Income, credit, deposit or policy issues can sometimes be identified before you find a property.
Prepare to make an offer
Having your finance position reviewed beforehand can make it easier to act when you find a suitable property.
Common first home buyer mistakes
Many problems can be avoided by getting the finance and purchase process organised before signing a contract.
Using every dollar for the deposit
Leaving no cash buffer can make purchase costs, moving expenses and unexpected property costs difficult to manage.
Assuming borrowing capacity is the same everywhere
Different lender policies can produce significantly different outcomes.
Taking on new debt before settlement
A new car loan, credit card or other debt can change serviceability after approval.
Changing jobs during the application
Employment changes can affect lender assessment and may need to be disclosed.
Making an unconditional offer too early
Removing finance conditions before the loan is adequately progressed can increase risk.
Focusing only on the interest rate
Fees, lender policy, features and the suitability of the overall loan structure also matter.
Buying at auction
Auction purchases require particular care because a successful bid is generally not subject to a normal finance condition.
Before bidding, it is important to understand your borrowing position, available funds and lender requirements. The property itself may also need to be acceptable to the lender.
Pre-approval can be useful, but it does not guarantee that every property will be accepted or that unconditional finance approval will automatically follow.
Why lender selection matters
The right lender for one first home buyer may not be the right lender for another.
Deposit requirements
Lenders can have different policies for smaller deposits, genuine savings and gifted funds.
Government schemes
Not every lender participates in every first home buyer program.
Borrowing capacity
Serviceability calculations vary and can affect the amount available.
Income policy
Overtime, casual income, probation, bonuses and other income may be treated differently.
Property policy
Certain apartments, locations or property types may be treated differently between lenders.
Pricing and features
Interest rates, fees, offset accounts and other features can vary considerably.
How I help first home buyers
My role as a mortgage and finance broker is to help you understand the lending process before it becomes overwhelming.
That includes reviewing borrowing capacity, deposit options, lender policy, possible government assistance, loan structure and the costs that need to be allowed for.
The aim is to help you understand what you can realistically do before you make a major financial commitment.
A typical first home buying journey
The exact process will vary, but most first home purchases follow a similar pathway.
- 1
Review your position
Look at income, expenses, debts, available deposit and your likely purchase timeframe.
- 2
Estimate borrowing capacity
Assess a realistic loan and property price range.
- 3
Check assistance and deposit options
Review any government schemes, concessions, gifted funds or family support that may be relevant.
- 4
Compare lenders
Identify suitable lenders based on borrowing capacity, deposit, policy, rate and features.
- 5
Arrange pre-approval where appropriate
Obtain conditional approval before committing to a property where this suits the buying strategy.
- 6
Find and assess the property
Review the contract, complete any appropriate inspections and understand the proposed settlement timeframe.
- 7
Formal loan approval
The lender completes the final assessment of both the borrowers and the property.
- 8
Settlement
Once all conditions are satisfied, the purchase settles and ownership transfers to you.
First home buyer questions
How much deposit do I need to buy my first home?
The required deposit depends on the property value, lender policy, loan-to-value ratio and whether you qualify for any government assistance or guarantee.
Can I buy a home with less than a 20% deposit?
Potentially. Smaller-deposit lending may be available, although lenders mortgage insurance or additional eligibility requirements may apply.
What are genuine savings?
Genuine savings generally refers to funds that have been saved or held over a period of time. The exact definition and requirement varies between lenders.
Can my parents help with my deposit?
Yes, depending on the lender and structure. Assistance may include a financial gift or, in some circumstances, a family guarantee using property security.
What government assistance is available to first home buyers?
Government support may include loan guarantees, grants, stamp-duty concessions or shared-equity programs. Eligibility and availability depend on current federal, state or territory rules.
What is lenders mortgage insurance?
Lenders mortgage insurance may apply where the amount borrowed is high relative to the property value. It generally protects the lender rather than the borrower.
Should I get pre-approval before looking for a property?
Pre-approval can be useful because it helps establish a realistic purchasing range and may identify lending issues before you make an offer.
Does pre-approval guarantee my home loan?
No. Pre-approval is generally conditional. Final approval usually depends on the property, current financial information and the lender's remaining conditions.
Can I bid at auction with pre-approval?
Pre-approval can help you understand your position, but an auction purchase is generally unconditional. The property and final application still need to satisfy the lender's requirements.
How much should I borrow?
The maximum amount a lender is prepared to offer may be different from the amount you are comfortable repaying. Your own budget and future plans should also be considered.