Buying your first place in Australia is exciting, but budgets can blow out fast. This guide shows how to set a safe property budget using borrowing capacity and pre approval, then layer in deposits, stamp duty, and real repayments. You will see worked examples, simple checklists, and quick Q&A so you can plan with confidence. Use this as an educational guide to avoid common traps and keep your decisions clear.

First Home Buyer: Know Your Borrowing Limit

Key takeaways

• Use borrowing capacity and pre approval to set a firm budget line.
• Include total costs: deposit, stamp duty, legals, moving, and buffers.
• Stress test repayments with a rate rise buffer and a savings cushion.
• A small budget overrun can lift annual repayments more than expected.

Borrowing Capacity: Set Your Limit

Setting your budget starts with borrowing capacity: how much a lender may let you borrow based on income, debts, living costs, and the loan product. Recent research highlights the risk of pushing past that line: “Almost half (47%) of first-time buyers paid more than they budgeted, a significant increase from 38% in 2022.”* Use capacity as a ceiling, not a target, and allow a buffer for unexpected costs.

Small overruns add up quickly. The same research notes: “Spending an extra $50,000 over budget… adds more than $3,500 to annual loan repayments on an initial budget of $500,000.”* That is a clear sign to lock in a top price before inspections and auctions. Decide your line, write it down, and keep it in view during negotiations.

Australian example: a buyer on $100,000 with modest debts might see a borrowing capacity near $600,000 with a 30-year term at 5.9% variable. If that buyer stretches to $650,000, repayments rise by roughly $3,960 per year even before council rates, insurance, and strata. That can squeeze lifestyle spending and the emergency buffer.

Capacity is not static. Lenders assess at higher “serviceability” rates. Your credit limits, HECS-HELP, and spending profile also matter. Review your numbers before you start searching, then update them if income or interest rates move. The goal: arrive at opens and auctions with a non-negotiable budget that fits your cash flow.

Set a safe capacity guardrail

Translate your borrowing capacity into a hard property budget. Decide a “walk-away” number and keep search filters under it. If listings look underquoted, trim your top price again.

• Pro tips (AU): Use like-for-like rates in calculators, check your HECS-HELP impact, include existing card limits, model 1.0% rate rise, and note strata or land tax.
• What to prepare: income docs, debt statements, living costs estimate, and two recent bank statements.
• Worked example: Budget $600,000 at 5.9% vs $630,000 adds about $2,400 a year; over five years that is ~$12,000 plus purchase costs.
• Template phrase: “Thanks for the info. My budget is firm at $X based on capacity and buffers.”

Pick a loan term that fits your pay

Longer terms can lower monthly repayments but increase total interest. Shorter terms lift repayments now but reduce lifetime cost. Choose a term that matches your income and buffer strategy.

• Pro tips (AU): Model 25 vs 30 years, check break costs if fixing later, and align your term with career or family plans.
• Worked example: $580,000 over 30 years at 5.8% vs 25 years changes annual repayments by ~<$3,600>, but saves significant interest over time.

Run a real-world rate buffer

Serviceability tests already include buffers, but run your own scenario. Model repayments at +1.0% and +1.5% above today. If your budget only works at today’s rate, it is tight.

• Pro tips (AU): Add home insurance, utilities, transport, and a maintenance allowance. Keep three months of expenses in a cash buffer.
• Worked example: $600,000 at 5.9% rising to 6.9% lifts annual repayments by roughly $4,200. Make sure that still fits.

Helpful checklist

• Calculate borrowing capacity with buffers
• Convert capacity into a capped search price
• List all debts and card limits
• Decide a walk-away number before viewings

What this means for Buyers

• Clarity: a firm top price reduces stress at opens and auctions.
• Better shortlists: fewer mismatched properties, more suitable targets.
• Resilience: your budget still works if rates rise or costs pop up.

Quick Q&A

Q: Is borrowing capacity the price I should pay?
A: No. Treat it as a ceiling. Build in buffers for costs and possible rate rises.

Q: How often should I recalc capacity?
A: Update it after any pay change, new debt, or major rate move.

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Related reading: Borrowing power and pre approval

• What Is Approval In Principle (AIP)?
• Borrowing Capacity Calculator - How Much Can I Borrow?
• Your Beginners Guide to Buying Property

Pre Approval: Lock In Your Budget

Pre approval (often called approval in principle) confirms a lender is comfortable with your profile up to a limit. It is not final approval, but it signals what you can reasonably offer on a property. For first home buyers, this step turns a rough budget into a credible limit you can act on.

Pre approval focuses on you: income, savings, debts, conduct, and the product rules. Final approval adds the property: valuation, building type, location policy, and any complex features. Keep documents tidy and consistent. If your situation changes, refresh the pre approval quickly.

Australian example: a buyer earning $95,000 with a $15,000 credit limit and a HECS-HELP balance gets pre approval for $620,000. With a 10% deposit saved, the realistic top price might be near $680,000 including costs. If the lender valuation comes in short by 2%, the buyer needs extra cash or must adjust the offer.

Time matters. Many pre approvals last 60 to 90 days. Set calendar reminders to renew before they expire. Confirm how the lender treats overtime, bonuses, and variable income. Ask the lender or broker which postcodes or building types have tighter rules.

Pricing review with the lender’s retention team

Even before you buy, learn the language for a future “pricing review.” If your LVR improves after settlement, you may ask the lender to review your rate later without moving banks. Knowing this now helps you plan.

• Pro tips (AU): Note LVR bands like 90%, 80%, 70%. Keep statements tidy to show good conduct for future reviews.
• Worked example: A buyer starts at 88% LVR, then drops to 79% after savings and valuation uplift, and secures a small discount.

Valuation-ready property shortlists

Lender policies vary for high-density units, small internal areas, or specialised structures. Shortlist properties that meet common criteria to avoid surprises at valuation time.

• Pro tips (AU): Check building size, age, strata levies, and any known defects. Ask for recent comparable sales.
• Worked example: Two similar units at $650,000. One has 52 m² internal area and higher levies, triggers a conservative valuation. The 60 m² unit clears policies more easily.

Keep pre approval warm

Life moves. If your income or debts change, tell your broker or lender early. Refresh payslips and bank statements before they go stale. Avoid opening new credit right before an offer.

• Pro tips (AU): Keep a simple “proof of funds” PDF, set reminders at day 45 and day 80, and pause buy-now-pay-later accounts.
• Worked example: Buyer with a 90-day window renews at day 70, gaining time to bid at two auctions without rushing.

Checklist

• Confirm pre approval limit and expiry date
• Prepare ID, payslips, statements, and savings history
• Shortlist valuation-friendly properties
• Set reminders to renew before expiry

What this means for Sellers

• Pre-approved buyers can exchange faster after valuation.
• Fewer fall-overs: funding risk is lower when documents are current.
• Clear comms: a capped limit often means fewer unrealistic offers.

Quick Q&A

Q: Is pre approval a guarantee?
A: No. The property must still pass valuation and policy checks.

Q: How long does pre approval last?
A: Often 60–90 days. Check your lender and set reminders to refresh.

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Related reading: Deposits, duty and costs

• Hidden Costs of Buying a Home: What You Need to Budget For
• How Much Deposit for a Home Loan? Find Out Today!
• Calculate Your Stamp Duty

Total Costs: Deposit, Stamp Duty, Fees

Your property budget is more than the contract price. Add a deposit, stamp duty or transfer duty, legal fees, inspections, lender fees, and moving costs. Some buyers qualify for concessions or grants, but always model the full amount first. This keeps your cash at settlement realistic.

Deposit size shapes your LVR and can change your interest rate tier. At 20% deposit many borrowers avoid LMI, but plenty of first home buyers start at 5% or 10%. If you choose a lower deposit, add LMI to your costs and confirm whether it is payable upfront or capitalised into the loan. Plan the cash flows, not just the totals.

Australian example: price $700,000. A 10% deposit is $70,000. Add estimated NSW stamp duty on a first home at that price if no concession applies, plus $2,500 for conveyancing and $800 for building and pest. With LMI at this LVR, the upfront or capitalised cost can be several thousand dollars. Your settlement funds may need to cover $80,000+ before moving costs.

Costs vary by state and property type. Units have strata levies, houses can have higher maintenance. Some government schemes reduce duty or allow smaller deposits. Always verify eligibility windows and price caps, then stress test your plan if a concession ends before you buy.

Map your deposit pathway

Work backwards from your target price. Decide your deposit rate, then set monthly savings goals and timelines. Consider how gifts or guarantor structures change LVR and LMI.

• Pro tips (AU): Track expenses, automate savings on payday, and park funds in a separate account to avoid accidental spending.
• Worked example: Target $650,000 with 10% deposit: save $65,000 plus costs. At $2,000 per month, that is ~33 months before extra sources.

Stamp duty shortcuts and checks

Use a calculator to estimate duty by state, then confirm any first home concessions. Keep a version with concessions and a version without, so your plan still works if eligibility changes.

• Pro tips (AU): Check residence rules, time limits, and price caps. Keep a buffer for registration and transfer fees.
• Worked example: At $680,000 in a state with a concession up to $700,000, duty could be reduced, but confirm cut-off dates and documents.

LMI or no LMI

LMI can help you buy sooner with a smaller deposit, but it is a cost trade-off. Compare “buy now with LMI” to “save longer for 20%.” Factor rent vs market growth over your saving period.

• Pro tips (AU): Model both scenarios over two years. Ask if the lender capitalises LMI into the loan and how that affects repayments.
• Worked example: $620,000 loan with capitalised LMI adds ~$X to the balance, increasing annual repayments by ~$Y at 6.0%. Compare to waiting 12 months.

Checklist

• List every cost: duty, LMI, conveyancing, inspections, moving
• Decide your deposit target and savings plan
• Check grant or concession eligibility and dates
• Keep a buffer for surprises

What this means for Current borrowers

• Clear cash map at settlement reduces stress.
• Right-sized deposit can improve your LVR band and pricing later.
• Knowing duty rules avoids last-minute shortfalls.

Quick Q&A

Q: Is 20% deposit required?
A: No. Many first home buyers use 5% or 10% with LMI or a scheme if eligible.

Q: Are costs the same for houses and units?
A: No. Units add strata levies. Houses can have higher maintenance.

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Repayments: Stress Test Your Plan

Repayments should fit your income after tax and regular bills. Build a simple model that includes loan repayments, utilities, transport, groceries, insurance, and a maintenance allowance. Then apply a rate buffer and a small “what if” for unexpected costs. This turns a headline rate into a real monthly number.

Stress testing helps you trade off property features against comfort. If a townhouse with higher strata pushes repayments above your comfort line, consider a unit with lower levies or a suburb where you keep your buffer. Remember: the best property is the one you can hold through ups and downs.

Australian example: Two options. Option A: $640,000 loan at 6.1% variable with $4,680 in monthly household costs. Option B: $600,000 loan at 6.1% with $4,300 costs. At +1.0% rate, Option A adds roughly $4,200 per year, Option B adds ~$3,900. Pick the option where your buffer survives.

Planning to go over budget by $50,000 to “win” at auction? Model it first. The earlier research shows the annual impact can be more than $3,500 on a $500,000 plan.* If that squeezes your buffer, explore different suburbs or property types, or pause for a better fit.

Set a repayment guardrail

Choose a monthly repayment you will not exceed. If a listing would push repayments above that number at your buffer rate, skip it. Keep the guardrail visible during searches.

• Pro tips (AU): Use fortnightly repayments to align with pay cycles. Re-price insurance and utilities. Keep a separate emergency stash.
• Worked example: Guardrail $3,300 per month at 6.2%. A $620,000 loan fits, a $660,000 loan does not at +1.0%.

Offset and redraw planning

Offset accounts and redraw can help manage cash and reduce interest while keeping flexibility. Plan how much to keep in offset as your first defence against a rate rise.

• Pro tips (AU): Keep 1–3 months of expenses in offset, set automatic transfers, and review fees vs benefits each year.
• Worked example: $20,000 in offset on a $600,000 loan at 6.0% saves about $1,200 interest per year, giving you breathing room.

If you do go over budget

Have a fallback plan. Can you trim discretionary spending, delay non-essential upgrades, or increase income? Can you switch to a different product structure later without penalties?

• Pro tips (AU): Keep receipts for tax time if you renovate, compare fixed vs split options at review time, and ask for a pricing review if your LVR improves.
• Worked example: Buyer spends $40,000 over plan. At 6.2%, annual repayments rise by ~$2,480. Offsetting $10,000 halves the hit.

Checklist

• Write a monthly repayment guardrail
• Model +1.0% and +1.5% rates
• Include all household costs
• Keep 1–3 months’ expenses in cash

Quick Q&A

Q: Should I choose fortnightly or monthly repayments?
A: Pick the one that matches your pay cycle so cash flow stays smooth.

Q: Can offset really make a difference early on?
A: Yes. Even a modest balance cuts interest and builds a habit of saving.

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Sources

* Finder’s First Home Buyer Report: Blown budgets, buyers remorse, and the struggle to buy solo: Finder; 2025

Disclaimer: The opinions expressed in this article are strictly for general informational and entertainment purposes only and should not be taken as financial advice or recommendations.