Key Takeaway

Getting your first home loan in Australia requires meeting a lender’s serviceability test, saving a deposit (typically 5 to 20 per cent of the property price), and understanding how lenders mortgage insurance (LMI) applies when your deposit is under 20 per cent. First home buyers can access government schemes like the Home Guarantee Scheme to reduce the deposit required, and obtaining pre-approval before house hunting shows sellers you are a serious buyer with confirmed borrowing capacity.

Understanding Pre-Approval

Pre-approval (also called conditional approval) is a written statement from a lender confirming how much they are willing to lend you, subject to a property valuation and final documentation checks. According to ASIC MoneySmart, pre-approval gives you confidence about your budget and strengthens your position when making an offer (MoneySmart, 2024).

Most lenders grant pre-approval for three to six months. You will need to provide proof of income (payslips, tax returns, or financial statements if self-employed), details of your expenses, and your credit history. The lender assesses your serviceability by comparing your income against your existing debts, living expenses, and the proposed loan repayments at a higher interest rate buffer (usually 2.5 to 3 percentage points above the actual rate).

Pre-approval does not lock in an interest rate, and the lender can withdraw the offer if your financial circumstances change or if the property valuation comes in below the purchase price.

Deposit and Lenders Mortgage Insurance

The deposit is the upfront amount you contribute toward the property purchase, with the lender funding the remainder as the loan. A 20 per cent deposit is the standard threshold: if you borrow 80 per cent or less of the property value (a loan-to-value ratio or LVR of 80 per cent), you typically avoid lenders mortgage insurance.

LMI is a one-off premium that protects the lender (not you) if you default on the loan. The cost rises as your LVR increases and can add several thousand dollars to your upfront costs or be capitalised into the loan. Foundational texts such as Principles of Finance explain that lenders use insurance mechanisms to manage the higher risk of low-deposit loans.

If you have a deposit of 5 to 10 per cent, LMI becomes significant, but government schemes may help you avoid it altogether.

Government Schemes for First Home Buyers

The Australian Government’s Home Guarantee Scheme allows eligible first home buyers to purchase a property with a deposit as low as 5 per cent without paying LMI, because the government guarantees part of the loan. The scheme has annual place limits and eligibility criteria based on income and property price caps, which vary by location (NHFIC, 2024).

Read also: Lenders Mortgage Insurance in Australia: How to Avoid or Reduce the Cost

State and territory governments also offer concessions on stamp duty for first home buyers, and in some cases grants for purchasing new homes or building. Stamp duty is a state-based tax on property purchases, and the concession can save you thousands of dollars depending on the property price and location. Each state sets its own thresholds and conditions, so check your state revenue office or speak to a conveyancer for details.

These schemes change regularly, and availability may be limited. Confirm current eligibility and application processes with the relevant authority or a licensed mortgage broker.

Meeting Serviceability Requirements

Lenders assess whether you can afford the loan repayments by examining your income, expenses, existing debts, and credit history. Serviceability is tested at a rate higher than the advertised loan rate (the buffer accounts for potential rate rises), and lenders calculate your living expenses using either your declared costs or a benchmark figure, whichever is higher.

A strong credit file improves your chances of approval. Check your credit report through a free service before applying, and fix any errors or outstanding defaults. Reduce high-interest debts (credit cards, personal loans) before applying, as they lower your borrowing capacity.

If you are self-employed, lenders typically require two years of tax returns and may assess your income more conservatively. Casual or contract workers should demonstrate stable employment history and provide additional documentation to support their application.

Next Steps

Start by checking your credit file, setting a realistic savings goal for your deposit, and researching current home loan rates and comparison rates from multiple lenders. Comparison rates include most fees and charges, giving you a more accurate picture of the loan cost. Speak to a licensed mortgage broker or lender to confirm your borrowing capacity and explore whether you are eligible for government schemes. Once you have pre-approval, you can house hunt with confidence and move quickly when you find the right property.

General Advice Warning

The information in this guide is general in nature only and does not consider your personal objectives, financial situation, or needs. Home loan products, eligibility criteria, interest rates, fees, lenders mortgage insurance costs, and government schemes vary by lender, location, and individual circumstances. Advertised rates differ from the comparison rate, which includes most fees and charges; as of October 2026, rates change frequently, so verify current terms with a licensed lender or mortgage broker before making any decisions. You should consider obtaining personal advice from a licensed mortgage broker or financial professional before acting on any information in this guide. This is not personalised financial, lending, or legal advice.