Pre-Purchase Planning and What First Home Buyers Miss

Most people browse real estate listings before they understand what they can actually afford.

The sequence matters more than you'd think. When you start looking at properties before you've mapped out your borrowing capacity, deposit sources, and government assistance options, you end up making emotional decisions that your finances can't support. Then you're either disappointed or scrambling to make the numbers work after you've already fallen for a place.

Working Out What You Can Actually Borrow

Your borrowing capacity depends on your income, expenses, existing debts, and the deposit you have saved. Lenders assess your living expenses using either your actual spending or a benchmark figure, whichever is higher. In our experience, buyers who haven't reviewed their bank statements in the three months before applying are often surprised when their spending patterns reduce what they can borrow.

Consider a buyer earning $85,000 annually with $60,000 saved. If they're spending $2,800 monthly on living costs and have a $15,000 car loan, their borrowing capacity will be lower than someone with the same income but lower expenses and no existing debt. That difference could be $50,000 to $80,000 in borrowing power, which translates directly to which suburbs become accessible.

Before you calculate anything else, you need clarity on this number. It determines whether you're looking in Mentone or Mordialloc, whether a unit or townhouse is realistic, and how much you need to increase your deposit to reach your target price range.

Deposit Sources and How Lenders View Them

You need to show where every dollar of your deposit came from. Lenders require three months of savings history for funds sitting in your account. If family members are gifting you money, you'll need a signed declaration stating it's a genuine gift with no repayment expectation.

Some buyers assume they can use a personal loan to top up their deposit. That doesn't work because it adds to your debts and reduces borrowing capacity. Others think they can deposit cash gifts the week before applying. Lenders will ask where that money originated, and if you can't document it, they won't include it in your usable deposit.

In a scenario like this: a buyer has $45,000 saved and their parents offer $20,000 as a gift. The parents transfer the funds four weeks before the loan application and provide a statutory declaration confirming it's a gift. The lender accepts the full $65,000 as the deposit. If the same buyer received that $20,000 as cash and deposited it themselves without proper documentation, the lender would likely only recognise the $45,000 in genuine savings.

If you're planning to access your super through the First Home Super Saver Scheme, that process takes several weeks. You need to request a determination from the ATO, then make a release request after you have a signed contract. Timing this correctly means understanding the scheme months before you're ready to make an offer.

Understanding First Home Buyer Assistance Programs

Victoria offers stamp duty concessions and exemptions depending on your purchase price and property location. For established homes, you pay no stamp duty on properties up to $600,000 and receive partial concessions up to $750,000. For new or substantially renovated homes, the thresholds are higher: no duty up to $800,000 and concessions to $1 million.

The Home Guarantee Scheme includes two programs relevant to first home buyers. The First Home Guarantee lets you borrow with a deposit as low as 5% without paying Lenders Mortgage Insurance (LMI). The Regional First Home Buyer Guarantee offers the same benefit but only for properties in regional areas. Both have purchase price caps and income limits, and places are capped each financial year.

LMI is an insurance policy that protects the lender if you default on your loan. It doesn't protect you. The cost depends on your deposit size and loan amount. On a $550,000 purchase with a 10% deposit, LMI might cost between $15,000 and $20,000, typically added to your loan balance. Avoiding this through a guarantee scheme or by saving a 20% deposit saves you that entire amount.

Choosing Between Fixed and Variable Interest Rates

A variable interest rate moves with the market. When the Reserve Bank adjusts rates, your lender will usually follow. This means your repayments can increase or decrease. Most variable loans include features like offset accounts and unlimited extra repayments without penalty.

A fixed interest rate locks in your rate for a set period, usually one to five years. Your repayments stay the same regardless of market movements during that period. The limitation is that most fixed loans restrict how much extra you can repay each year, often capping it at $10,000 to $30,000. If you want to break the loan during the fixed period, you'll likely face break costs.

Many buyers split their loan between fixed and variable. This gives you rate certainty on part of your borrowing while maintaining flexibility on the rest. The split percentage depends on your priorities: income stability, risk tolerance, and whether you expect to receive irregular income like bonuses that you'd want to offset against the loan.

Pre-Approval Gives You a Realistic Timeline

Pre-approval is conditional approval from a lender before you've found a property. It confirms how much you can borrow based on your financial situation. It typically lasts three to six months and makes you a more credible buyer when you're ready to make an offer.

Without pre-approval, you're guessing whether you can actually afford the properties you're inspecting. In areas like Hampton or Brighton East, where markets move quickly, buyers without pre-approval often miss opportunities because sellers prefer buyers who can settle with certainty.

Pre-approval isn't a guarantee. The lender still needs to assess and value the specific property you choose. If you've changed jobs, taken on new debt, or your financial situation has shifted since pre-approval, the lender will reassess. It's a conditional green light, not a binding commitment.

Building a Budget That Accounts for Ongoing Costs

Your budget needs to include more than the purchase price and deposit. Conveyancing costs typically run $1,500 to $2,500. Building and pest inspections cost $400 to $800 combined. If you're buying a unit or townhouse, you'll need to budget for strata fees, which in bayside suburbs can range from $1,200 to $4,000 annually depending on the building's facilities and age.

Once you've settled, your repayments are only part of the picture. Council rates, water rates, insurance, maintenance, and potential strata levies add hundreds of dollars monthly. When you're calculating whether you can afford repayments, add at least $400 to $600 per month for these ongoing costs. That margin prevents you from becoming financially stretched after you move in.

If you're buying in an area like Cheltenham or Highett, where older homes are common, factor in higher maintenance costs compared to a newer property. An older home might mean replacing a hot water system, repairing roofing, or updating electrical work within the first few years.

Getting your planning right before you start looking puts you in control. You'll know what you can afford, which assistance you qualify for, and how to structure your loan to suit your situation. When you find the right property, you're ready to act without second-guessing the numbers or discovering problems after you've already committed.

Call one of our team or book an appointment at a time that works for you. We'll walk through your numbers, identify which programs you're eligible for, and get your pre-approval sorted before you start inspecting properties.

Frequently Asked Questions