Preparing to buy your first home in Melbourne means building savings, understanding what you can borrow, and gathering the right documents before you apply.
Getting ready to purchase is about more than just saving a deposit. You need to understand how lenders assess your application, what government support you can access, and what the total upfront cost will look like once you add stamp duty concessions, conveyancing fees, and other settlement expenses. Starting with a clear picture of these requirements means you can move quickly when you find the right property.
How Much Do You Need to Save for a Melbourne Property?
Your deposit is the foundation of your application, but it is not the only upfront cost. Most lenders require genuine savings, which means funds you have accumulated over at least three months in your own accounts. Gifts from family members can be used in addition to genuine savings, but most lenders want to see that you have been able to save consistently on your own.
For Melbourne buyers using the Australian Government 5% Deposit Scheme, the property price cap is currently $950,000. A 5% deposit on a property at that cap would be $47,500. Add around $6,000 to $8,000 for conveyancing, building and pest inspections, and loan establishment fees, and you are looking at just over $53,000 to $55,000 in total upfront costs before applying any first home buyer stamp duty concessions.
Victoria offers a full stamp duty exemption on properties up to $600,000 and a sliding scale concession between $600,001 and $750,000. If you purchase an established home in Melbourne's outer suburbs at $650,000, the concession reduces your duty bill significantly compared to standard rates. That saving alone can make the difference between being ready to settle or needing to delay your purchase.
Consider a buyer who has saved $30,000 over two years and receives a $15,000 gift from parents. The gift can be used toward the deposit, but the lender will require evidence that the $30,000 was accumulated in the buyer's own account over time through regular contributions. Bank statements showing consistent deposits from salary, with minimal unexplained cash deposits, demonstrate savings discipline. The buyer applies for a property at $600,000, uses a 10% deposit of $60,000, pays no stamp duty due to the full exemption, and settles with around $8,000 left over for costs and initial expenses.
Understanding Your Borrowing Capacity Before You Search
Knowing how much you can borrow shapes where you search and what property types you consider. Borrowing capacity is calculated using your income, regular expenses, existing debts, and the lender's assessment rate. Two buyers with identical incomes can receive different borrowing limits depending on their spending patterns and liabilities.
Lenders assess your living expenses using either your declared costs or a household expenditure measure, whichever is higher. If you are paying $2,000 a month in rent and spending another $1,500 on groceries, transport, subscriptions, and entertainment, that $3,500 will be factored into your serviceability calculation. A car loan with $400 monthly repayments reduces your borrowing power by around $80,000 to $100,000 depending on the lender.
In our experience, buyers who reduce their discretionary spending and pay down personal debts in the six months before applying often increase their borrowing capacity without changing their income. Closing out a credit card with a $10,000 limit, even if the balance is zero, can add $30,000 to $40,000 to what you can borrow. Lenders assess the full limit of any credit facility, not just what you owe.
You can get an estimate of your borrowing capacity using an online calculator, but the assessment rate used by lenders is typically higher than the actual interest rate you will pay. This buffer is designed to ensure you can still afford repayments if rates rise. It is worth speaking with a broker before you start attending open homes so you know your realistic price range.
What Documents Should You Gather for Your Application?
A home loan application requires proof of income, savings, identity, and employment. Having these documents ready before you apply speeds up the assessment process and reduces the chance of delays once you go unconditional on a property.
For proof of income, lenders typically require your two most recent payslips and either a letter from your employer or your most recent tax return and notice of assessment. If you receive bonuses, allowances, or overtime, you may need payslips covering a longer period to show that income is regular and ongoing. Self-employed buyers need two years of tax returns and often two years of financial statements prepared by an accountant.
Your savings evidence includes three to six months of bank statements for every account that holds part of your deposit. Lenders review these statements to confirm genuine savings and to check for irregular deposits or frequent overdrafts. If you are using a gift deposit, you will need a signed letter from the person providing the funds stating that the money is a genuine gift with no repayment expectation, along with bank statements showing the transfer.
Identity documents include your driver's licence or passport, Medicare card, and either a rates notice, utility bill, or bank statement showing your current residential address. Most lenders also require a council rates notice for the property you are purchasing and a copy of the signed contract of sale. Employment verification is completed through a phone call to your employer or by providing a letter on company letterhead confirming your role, salary, and employment status.
How Pre-Approval Fits Into Your Property Search
Pre-approval gives you a conditional loan commitment before you make an offer. It confirms how much you can borrow and shows sellers that you are a serious buyer with finance already assessed. Pre-approval is not a guarantee, but it removes much of the uncertainty around whether your application will be supported once you find a property.
The pre-approval process involves submitting a full loan application with all supporting documents. The lender assesses your income, expenses, debts, and credit history, then issues conditional approval subject to a satisfactory property valuation and no material change in your financial circumstances. Pre-approval is typically valid for three to six months depending on the lender.
In a scenario like this, a buyer applies for pre-approval in early winter, receives conditional approval within five business days, and begins attending auctions and private inspections with confidence. When they find a property in Footscray listed at $680,000, they make an offer of $665,000 with a finance clause of 14 days. The seller accepts. The buyer's broker submits the contract and rates notice to the lender, the property is valued at $670,000, and formal approval is issued within a week. Settlement occurs 30 days later. Without pre-approval, the buyer would have faced a longer and less certain finance process while their deposit sat in trust.
Pre-approval also allows you to compare loan features across multiple lenders before you commit. You can assess whether an offset account or redraw facility suits your repayment strategy, and whether fixing part of your loan provides certainty you value. These decisions are easier to make when you are not under time pressure from a signed contract.
Victorian First Home Owner Grants and When They Apply
Victoria offers a $10,000 First Home Owner Grant for new homes valued up to $750,000. The grant does not apply to established homes, but it can be combined with stamp duty concessions and the Australian Government 5% Deposit Scheme if you meet the eligibility criteria.
A new home includes a property that has never been occupied, a substantially renovated home where the renovation cost at least $100,000, or a home built under a comprehensive home building contract. Off-the-plan apartments and newly completed house and land packages both qualify. The grant is paid on settlement, meaning it can be used to reduce the amount you need to borrow or to cover settlement costs.
Buyers considering house and land packages in Melbourne's growth corridors such as Wyndham Vale, Clyde North, or Craigieburn can often access both the grant and full stamp duty exemption if the total package price is below $600,000 or partial concession if the price is between $600,001 and $750,000. This combination significantly reduces the upfront cost compared to purchasing an established home at the same price point.
The grant is not means tested and has no income caps, but you must be a natural person, an Australian citizen or permanent resident, and at least 18 years old. You must move into the property within 12 months of settlement and live there continuously for at least 12 months. If you purchase with someone else, only one of you needs to be a first home buyer, but the grant amount does not increase.
Choosing Between Fixed and Variable Interest Rates
Your interest rate structure affects your repayments, flexibility, and exposure to rate changes. A variable interest rate moves up or down in line with lender decisions and market conditions. A fixed interest rate locks in your rate for a set period, typically one to five years, providing certainty over your repayments during that time.
Variable rate loans generally offer more flexibility. You can make extra repayments without penalty, access redraw facilities or offset accounts, and refinance without paying break costs. If rates fall, your repayments reduce automatically. If rates rise, your repayments increase unless you have built a buffer in an offset account.
Fixed rate loans provide repayment certainty, which can help with budgeting in the early years of homeownership when other costs are less predictable. The downside is limited flexibility. Most fixed rate loans restrict extra repayments to a set amount per year, do not offer offset accounts, and charge break costs if you pay out the loan early or refinance before the fixed term ends.
Some buyers split their loan, fixing a portion for certainty and leaving the rest variable for flexibility. A 50/50 split gives you partial protection against rate rises while maintaining access to offset and redraw features on the variable portion. There is no universal right answer. Your decision depends on your risk tolerance, repayment strategy, and how much you value certainty versus flexibility.
Using the First Home Super Saver Scheme to Boost Your Deposit
The First Home Super Saver Scheme allows you to save for a deposit inside your superannuation fund and withdraw those contributions plus earnings when you are ready to buy. Voluntary contributions are taxed at 15% inside super, which is lower than most marginal tax rates, and earnings are taxed concessionally as well.
You can contribute up to $15,000 per financial year and withdraw up to $50,000 in total, plus associated earnings. Contributions can be made as salary sacrifice through your employer or as personal concessional contributions if you are self-employed. Both you and your spouse can use the scheme, potentially releasing up to $100,000 combined toward your deposit.
When you are ready to purchase, you apply to the Australian Taxation Office to release your contributions. The ATO processes the request and pays the funds to you, minus a release tax of up to 30% depending on your marginal rate. Even after the release tax, the scheme typically delivers more than saving the same amount in a standard bank account due to the lower tax rate on contributions and earnings.
The scheme works well if you are still one to two years away from purchasing and want to accelerate your savings. It is less useful if you are planning to buy within six months, as you need time for contributions to be processed and for earnings to accumulate. If you are considering this option, speak with a financial adviser or your superannuation fund to understand how it fits with your overall deposit strategy.
Call one of our team or book an appointment at a time that works for you. We will walk through your savings position, calculate your borrowing capacity, and help you prepare a loan application that puts you in the strongest position when you find the right property.
Frequently Asked Questions
How much deposit do I need to buy a home in Melbourne?
You can purchase with a 5% deposit under the Australian Government 5% Deposit Scheme, which has a property price cap of $950,000 in Melbourne. You will also need to budget for settlement costs including conveyancing, inspections, and loan fees, which typically add another $6,000 to $8,000 to your upfront costs.
What is genuine savings and how much do I need?
Genuine savings are funds you have accumulated over at least three months in your own accounts through regular contributions. Most lenders require you to demonstrate genuine savings as part of your deposit, though you can supplement this with gift funds from family members.
How long does pre-approval take and how long is it valid?
Pre-approval typically takes between three and seven business days once you submit a complete application with all supporting documents. Pre-approval is usually valid for three to six months depending on the lender, and it gives you conditional loan approval subject to a satisfactory property valuation.
Can I get the First Home Owner Grant on an established home in Victoria?
No, the Victorian First Home Owner Grant of $10,000 applies only to new homes valued up to $750,000. Established homes do not qualify for the grant, but you can still access stamp duty concessions on established properties up to $750,000.
Should I fix or keep my interest rate variable?
A variable interest rate offers more flexibility for extra repayments, offset accounts, and refinancing, while a fixed rate provides repayment certainty for a set period. Many buyers choose a split loan to balance certainty and flexibility, but the right choice depends on your financial goals and risk tolerance.
