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How to get a home loan in Australia

Woman excited about getting a home loan in Australia

Australia has one of the most expensive property markets in the world, so unless you have the savings to buy your home outright, you’ll need a home loan

So let’s outline how you can put your best foot forward in the application process. Here’s how to get a home loan in Australia.

Step 1: Calculate your borrowing power

Borrowing power

Your borrowing power, sometimes called ‘borrowing capacity’, is how much money a bank will lend you based on your income, debts, and spending. 

The lender wants to know how much you can spend on mortgage repayments, and if you have enough wiggle room to absorb costs like interest rate changes. High income and low debt mean more borrowing power.

Typically, your borrowing power is the upper limit of what you can afford, so it’s wise to borrow less than the number you get. 

Every lender has different ways of calculating borrowing power – some might be more risk-averse than others. However, you can get a rough idea using a borrowing power calculator.

Step 2: Save for a home loan deposit

Save for a home loan deposit

Once you know how much you can borrow, you’ll need to save for a home loan deposit.

A home loan deposit is a downpayment on your home loan. This establishes your loan-to-value ratio (LVR) and home equity, meaning you’ll own part of your home from day dot. 

The standard deposit size is 20% of the purchase price. However, given that the average mortgage size in Australia is over $600k, that’s a lot of money. 

Home loan deposit amounts on a $600,000 home loan

5% deposit
$30,000
10% deposit
$60,000
15% deposit
$90,000
20% deposit
$120,000

Many lenders let you buy with a smaller deposit between 5% and 15%, but this usually comes with penalties like higher interest rates and lenders’ mortgage insurance (LMI). LMI can add thousands to your home loan as an upfront or ongoing charge. 

It is also possible to pay a large deposit of 40% or more.

Expert Tip

Don’t just save for the home loan deposit. You may need to also pay stamp duty, mortgage application fees, and solicitor fees.

Step 3: Check your credit history

Credit history

Your credit score tells a lender how good you are at borrowing money. Higher credit scores show you make timely, full repayments – lower credit scores mean you’re less reliable.

Before submitting your home loan application, request your credit reports from the different credit bureaus (Ilion, Experian, and Equifax) to make sure they’re free of any errors.

You can also check the report for outstanding debt and red marks against you. A bad credit score looks like a red flag to a home loan lender, so if you can, work to improve your credit score before you apply.

Step 4: Avoid big lifestyle changes

Lifestyle stability

Mortgage lenders love certainty, so in the months leading up to your application, avoid lifestyle changes that impact your finances. 

This can include:

  • Switching jobs.
  • Taking out a personal loan or new credit card.
  • Large purchases from your savings, like travel.

The idea is to show stability. As unfair as it is, even having a child right before you apply can make home loan lenders nervous.

Step 5: Research first home buyer grants

First home owner grants

If you’re a first home buyer, research first home owner grants in your Australian state or territory to see if you’re eligible. These schemes can significantly lower the costs of home buying, so it’s worth it to at least consider. 

Typically, a first home buyer grant provides a lump sum payment towards your home loan and an exemption from stamp duty if you’re purchasing new or off-the-plan property under a certain price limit.

Step 6: Compare home loan types

Interest rate types

Home loans come in many varieties for homeowners and property investors. The main differences are interest rate type, features, and repayment style.

The classic choices are:

Fixed interest rates stay the same for a period of time, called a fixed term (typically 1-5 years). Variable rates can increase or decrease at the lender’s discretion, but these loans come with more flexibility and interest-saving features like offset accounts than fixed rates. 

Split rates combine the best of both worlds: part of your interest rate is fixed and variable. 

Each interest rate type has pros and cons, so compare them to see what works best for you. 

Most mortgage repayments include principal and interest, but you can choose to make interest-only payments for a short time period. This can lower your costs in the short term, but keep in mind that you’re not accruing equity because you’re not paying down any principal.

Step 7: Compare home loan deals

Compare home loans

Even if you’re not quite sure what kind of home loan you want, start comparing home loans to see what options are available. 

You don’t have to get a home loan with your bank or even a bank: there are plenty of specialist or online lenders to choose from. The more home loans you see, the easier it is to see what’s interesting or useful to you.

Step 8: Create a shortlist of lenders

Shortlist

After comparing home loans, select a few to seriously consider. This means:

  • Crunching potential mortgage repayments.
  • Looking at comparison rates, not just interest rates.
  • Comparing the features and fees to similar home loans.

This can help you narrow your search to those who tick the right boxes. Organise your final choices in order of preference. If all goes well, the first home loan lender you apply to is the last one you apply to. 

Step 9: Get home loan pre-approval

Home loan pre-approval

Once you have your ideal home loan, apply for home loan pre-approval (sometimes called conditional approval). This is a statement from the lender indicating how much they’re willing to lend you. 

This statement is conditional and temporary, meaning it can be withdrawn or changed if circumstances change. 

Home loan pre-approval lets you shop confidently and make an offer when you find the property you want, including bidding at auction

For more on making offers, read our guides on how to buy your first home and negotiation tips.

Step 10: Home loan settlement

Home loan settlement

If your offer to buy is accepted, it’s time to pay the deposit, exchange contracts of sale, and arrange formal approval from your home loan lender. 

To get formal approval, contact your lender. They will review your mortgage and property details, and then send you a home loan contract to sign. Once you’ve returned the contract to them, the lender transfers the loan payment to the seller. 

Once the home loan settlement is complete, your mortgage is officially underway. Congratulations!

Compare first home buyer loans in the table below.

Compare first home buyer home loans - last updated 28 May 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • First Home Buyer Loan Special

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    5.90% p.a. variable
    5.93% p.a.

    A low variable rate loan for home buyers. No establishment or ongoing fees to pay. 100% offset account included. Allows for unlimited repayments, redraws and flexible repayment options.

    Compare
    Details
  • Basic Home Loan Special Offer

    Owner Occupier, Principal & Interest, LVR 80-95%

    interest rate
    comparison rate
    Initial monthly repayment
    6.69% p.a. variable
    6.70% p.a.

    Compare
    Details
  • FHBG Special Offer Classic Home Loan

    interest rate
    comparison rate
    Initial monthly repayment
    6.19% p.a. variable
    6.21% p.a.

    Compare
    Details
  • Basic Variable Home Loan

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    5.94% p.a. variable
    5.99% p.a.

    Compare
    Details
  • First Home Buyer Variable Home Loan

    Advantage Plus, Owner Occupier, Interest Only, LVR >90%

    interest rate
    comparison rate
    Initial monthly repayment
    5.99% p.a. variable
    6.76% p.a.

    Compare
    Details
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Need help with refinancing?

You might have questions that need personal answers. We’ve teamed up with the mortgage brokers at Lendi to get you the answers you need, and a home loan deal you deserve.

Learn more
Evlin DuBose
Evlin DuBose
RG146
Senior Money Writer

Evlin is RG146 certified for Generic Knowledge and has become a leading voice in finance news since joining Mozo two years ago. She is regularly featured in Google's Top Stories alongside major publications like News.com.au and Yahoo Finance, and seasoned journalists. Despite being in the industry for just two years, she is Mozo's go-to writer for all things RBA and her research has been referenced by the Victorian Government. With a Bachelor of Communications degree from UTS, where she won the Dean's Merit Award and acted as the Director of Student Publications.

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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