How to Buy Your First House in Victoria

The Deposit Gap Most Buyers Underestimate

The minimum deposit to secure a home loan in Victoria sits at 5% under the Australian Government 5% Deposit Scheme, but that figure tells only part of the story. Buyers need to fund stamp duty, conveyancing, building inspections, and lender fees on top of the deposit itself.

Consider a buyer targeting a property at the scheme's Victorian capital city cap of $950,000. The 5% deposit requirement is $47,500. Stamp duty on that purchase, even with the first home buyer exemption applied to properties below $600,000, would be close to $51,000 at the standard rate for properties over $750,000. Add another $2,000 for conveyancing, $500 to $800 for a building and pest inspection, and $300 to $600 in application and valuation fees. That buyer needs roughly $101,000 in accessible funds before settlement. The scheme removes Lenders Mortgage Insurance, which would otherwise add another $30,000 to $35,000 to the transaction, but the upfront cash requirement remains substantial.

This is where genuine savings, gifted deposits, and the First Home Super Saver Scheme converge. Lenders require most of the deposit to come from genuine savings held for at least three months. A gifted deposit from immediate family can typically cover up to 100% of the deposit depending on the lender, but stamp duty and settlement costs still need to be funded. Releasing up to $50,000 through the FHSS Scheme can close the gap, but buyers need to apply for an ATO determination before signing a contract.

Victorian Stamp Duty: Where the Concession Ends

Victorian first home buyers receive a full stamp duty exemption on properties valued up to $600,000 and a sliding concession on properties between $600,001 and $750,000. Beyond $750,000, standard rates apply. At $750,001, the buyer pays full duty. At $600,000, the buyer pays nothing. At $675,000, the buyer pays approximately $11,000.

For buyers looking at inner-city suburbs like Richmond, Fitzroy, or Collingwood where median house prices sit well above the $750,000 threshold, the stamp duty bill becomes a defining constraint. A $900,000 property attracts roughly $48,000 in stamp duty. A $1,000,000 property attracts roughly $55,000. The concession does not phase down gradually above $750,000, it disappears entirely.

Buyers targeting regional Victorian centres including Geelong, Ballarat, and Bendigo benefit from lower median prices that often sit within the concession band. A property purchased in Geelong at $650,000 would attract stamp duty of approximately $7,000 after the concession, compared to $34,000 at the standard rate. That $27,000 saving can be redirected toward the deposit or held as a cash buffer post-settlement.

Fixed Versus Variable: How First Home Buyers Should Structure the Loan

Most lenders writing home loans for first home buyers under the 5% Deposit Scheme offer variable, fixed, and split rate options. The decision depends on cash flow stability and interest rate outlook, not on what the borrower hopes will happen.

A variable rate loan with an offset account allows the buyer to park savings against the loan balance and reduce interest charges in real time. A buyer with $20,000 sitting in an offset account linked to a $900,000 loan effectively pays interest on $880,000. Every dollar in the offset works. Redraw facilities allow the buyer to make extra repayments and withdraw them later, but access is at the lender's discretion and redraw can be restricted if the loan falls into arrears or the lender tightens policy.

A fixed rate locks in the repayment for a set term, typically one to five years. The buyer gains certainty but loses flexibility. Offset accounts are rarely available on fixed rate loans. Extra repayments are usually capped at $10,000 to $30,000 per year depending on the lender. Break costs apply if the buyer exits the fixed term early, either by selling the property or refinancing.

A split structure allows the buyer to fix a portion of the loan and leave the remainder on a variable rate with offset. A buyer might fix 50% of a $900,000 loan at a rate locked for three years and leave the other 50% variable with full offset access. That structure delivers partial rate certainty without sacrificing liquidity.

Pre-Approval Timing and Why Most Buyers Apply Too Late

Pre-approval confirms the amount a lender is willing to advance and the deposit required. It does not lock in the interest rate and it does not commit the lender to final approval, but it gives the buyer confidence to make an offer.

Most first home buyers apply for pre-approval after they have started attending auctions or inspecting properties. That sequence creates pressure. The buyer finds a property, makes an offer, and then discovers the lender requires additional documentation, a larger deposit, or a lower purchase price. The offer lapses or the buyer withdraws.

Applying for pre-approval three to six months before beginning the property search allows time to address any issues in the application. Lenders assess income, employment stability, existing debts, credit history, and savings history. A buyer with a recent credit default, a casual employment contract under 12 months, or inconsistent savings patterns may need to adjust their timeline or provide additional documentation. Pre-approval identifies those issues before the buyer is competing for a property.

Pre-approval is typically valid for 90 days, though some lenders extend it to 120 days. If the buyer has not found a property within that window, most lenders will refresh the pre-approval without requiring a full reapplication, provided the buyer's financial position has not changed.

How Lenders Assess Borrowing Capacity for First Home Buyers

Lenders calculate borrowing capacity using net income, existing liabilities, living expenses, and a serviceability buffer. The serviceability buffer is typically 3%, meaning the lender assesses whether the buyer can afford repayments at an interest rate 3% higher than the actual rate offered.

A buyer earning $90,000 annually with no dependents and minimal liabilities might have a borrowing capacity of $550,000 to $650,000 depending on the lender's policy and the interest rate applied. A buyer earning $120,000 annually with the same profile might reach $750,000 to $850,000. A dual-income couple with a combined income of $180,000 and no dependents could borrow $1,100,000 to $1,300,000, depending on liabilities and declared living expenses.

Lenders apply a standardised living expense benchmark called the Household Expenditure Measure, which is based on the buyer's income, dependents, and postcode. Buyers who declare living expenses below the HEM floor are required to use the HEM figure in the serviceability assessment. Buyers who declare expenses above HEM use the higher declared figure. Credit card limits, personal loans, HECS debt, and buy-now-pay-later accounts all reduce borrowing capacity even if the balances are nil.

First home buyers using the 5% Deposit Scheme do not pay LMI, which would otherwise add a capitalised cost of $20,000 to $40,000 depending on the loan size and deposit. That saving does not increase borrowing capacity directly, but it reduces the effective loan size and the total amount borrowed.

Regional Property Caps and the Shift in Buyer Strategy

The Australian Government 5% Deposit Scheme distinguishes between capital city and regional centre properties and other regional areas. In Victoria, properties in Melbourne and regional centres including Geelong, Ballarat, and Bendigo are capped at $950,000. Properties in other regional areas are capped at $650,000.

A buyer targeting a property in Mildura, Warrnambool, or Sale faces the $650,000 cap. A buyer looking in Geelong or Ballarat can purchase up to $950,000. The distinction is based on postcode and is applied by the lender at the time of application. Buyers should confirm the applicable cap with their lender before making an offer.

The lower cap in non-regional-centre areas has pushed some buyers toward properties in designated regional centres where higher price points are accessible under the scheme. A buyer with a $650,000 budget in a smaller regional town may find limited stock, while a buyer with a $950,000 budget in Geelong has access to a much wider range of established homes and newer builds.

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