Can I Afford to Buy a House? Australian Affordability Guide & Calculator
Work out whether you can realistically afford to buy a house in Australia. Covers deposit requirements, borrowing power, hidden costs, and the rent-vs-buy decision.
The three tests of housing affordability: deposit, borrowing power, and cash flow
Determining whether you can afford to buy a house involves three distinct tests, and you need to pass all three. The deposit test asks whether you have enough saved for a deposit plus upfront costs. Most lenders require a minimum 5% deposit, though 20% is the threshold for avoiding Lenders Mortgage Insurance (LMI). On a $700,000 property, a 5% deposit is $35,000 plus approximately $20,000 to $35,000 in stamp duty and other purchase costs — a minimum of $55,000 to $70,000 cash required. A 20% deposit on the same property means $140,000 plus costs, totalling $160,000 to $175,000. The borrowing power test asks whether a lender will actually lend you enough to purchase the property you want. Banks assess your income, expenses, existing debts, and apply a serviceability buffer (currently 3% above the actual interest rate) to determine your maximum loan. The cash flow test — often overlooked — asks whether you can comfortably afford the ongoing costs of ownership without financial stress. Passing the lender's serviceability test does not mean the repayments are comfortable. A lender might approve you for $600,000, but the repayments at current rates ($3,800 to $4,200 per month) might leave you with no savings capacity, no room for unexpected costs, and constant financial pressure. Use our Money Check tool to assess your overall financial readiness for a home purchase, including whether your emergency fund, debt position, and savings trajectory support taking on a mortgage.
How much deposit do you really need in 2026?
The traditional advice to save a 20% deposit before buying is well-intentioned but increasingly impractical in Australia's major capital cities. At current median house prices — Sydney $1.5 million, Melbourne $950,000, Brisbane $850,000, Perth $750,000, Adelaide $780,000 — a 20% deposit ranges from $150,000 to $300,000. For a single person on the median salary, saving $300,000 at $1,500 per month would take over 16 years. The reality is that most first home buyers in Australia now purchase with deposits between 5% and 15%, accepting LMI as the cost of entering the market sooner. LMI typically adds $8,000 to $30,000 to your total borrowing costs (it can be capitalised into the loan), but the trade-off is getting into the market years earlier and benefiting from capital growth that often exceeds the LMI cost within the first year or two of ownership. Government assistance programs can significantly reduce the deposit burden. The First Home Owner Grant provides $10,000 to $30,000 depending on the state for new or substantially renovated homes. The First Home Guarantee Scheme allows eligible buyers to purchase with just a 5% deposit with no LMI through a government guarantee. The First Home Super Saver Scheme lets you withdraw up to $50,000 in voluntary super contributions (plus earnings) for a home deposit, with tax advantages compared to saving outside super. Check your eligibility for all applicable grants and schemes using our First Home Buyer Grant Calculator. Calculate your potential LMI costs with our LMI Calculator and model your mortgage repayments with our Mortgage Calculator.
The hidden costs of buying a house that nobody tells you about
The purchase price is just the beginning. Many first home buyers are shocked by the additional costs that can add $30,000 to $80,000 or more on top of the price. Before settlement: stamp duty or transfer duty is the biggest upfront cost, ranging from $10,000 to $60,000 depending on your state and purchase price (check our Stamp Duty Calculator for an exact figure). Conveyancing or legal fees run $1,500 to $3,000. Building and pest inspections cost $600 to $1,200. Strata or body corporate searches (for apartments) are $300 to $500. Loan establishment fees range from $0 to $800 depending on the lender. LMI, if applicable, can add $8,000 to $30,000. At settlement: moving costs ($500 to $3,000), connection fees for utilities ($200 to $500), and any immediate maintenance or repairs that the inspection identified. Ongoing costs that renters do not pay: council rates ($1,500 to $4,000 per year), water rates ($700 to $1,200 per year), building insurance ($1,000 to $3,000 per year), contents insurance ($300 to $800 per year), strata fees for apartments ($3,000 to $12,000 per year), and maintenance ($5,000 to $15,000 per year as a general rule — budget 1% to 1.5% of the property value annually). The first year of ownership is typically the most expensive because you are furnishing an empty home, fixing issues identified at inspection, and encountering maintenance surprises. Budget at least $10,000 to $15,000 above the purchase price and upfront costs as a first-year buffer. Our Money Check tool helps you factor all of these costs into your affordability assessment.
Rent vs buy: when renting is actually the smarter financial move
The cultural narrative in Australia is that renting is 'throwing money away' and buying is always the smart choice. The reality is more nuanced. In certain circumstances, renting and investing the difference between rental costs and ownership costs (mortgage repayments, rates, insurance, maintenance, strata fees) can deliver a comparable or even superior financial outcome to buying. This is particularly true when purchase prices are very high relative to rents (Sydney and Melbourne often hit this threshold), when you are likely to move within five years (transaction costs of buying and selling consume most or all of the capital growth), when buying would require stretching your finances to a dangerous degree (leaving no emergency fund, no savings capacity, and constant financial stress), or when the opportunity cost of tying up your deposit in one illiquid asset means missing better investment opportunities. The price-to-rent ratio is a useful metric. Take the purchase price and divide by annual rent. If the ratio exceeds 25 to 30, renting is generally more cost-effective in the short to medium term. For example, if an apartment costs $750,000 to buy and $550 per week ($28,600 per year) to rent, the price-to-rent ratio is 26 — borderline, and worth careful analysis of your specific situation before committing to purchase. Use our Buying vs Renting Calculator to model the long-term financial outcome of each option based on your actual numbers. And use our Money Check tool to ensure your overall financial position is strong enough to support whichever decision you make.
How much can you actually borrow? Understanding serviceability
Lenders determine your borrowing capacity through a serviceability assessment that examines your income, expenses, and existing debts. As a rough guide, most banks will lend five to six times your gross annual income to a single borrower, or four to five times combined income for a couple. So a single person earning $90,000 might borrow $450,000 to $540,000, while a couple earning $160,000 combined might borrow $640,000 to $800,000. However, these figures can vary dramatically based on several factors. Existing debts reduce your capacity significantly. A car loan of $25,000 with $600 monthly repayments might reduce your borrowing power by $80,000 to $100,000. Credit card limits (not just balances) are assessed at 3% of the limit as an assumed monthly repayment — a $10,000 credit card limit reduces borrowing power by approximately $40,000 even if you pay it off in full each month. HECS-HELP debt reduces your assessed income by the repayment percentage. Living expenses are assessed against the Household Expenditure Measure (HEM) or your declared expenses, whichever is higher. Dependents reduce borrowing capacity by $3,000 to $8,000 each due to higher assessed living expenses. The interest rate buffer adds 3% to the current rate for serviceability purposes — so if the actual rate is 6%, the bank assesses your ability to repay at 9%. This is why many people feel they can afford a mortgage but get declined or approved for less than expected. Use our Borrowing Power Calculator for an estimate based on your specific circumstances, and our Mortgage Calculator to see what the repayments would actually look like at different loan amounts.
Creating your home-buying readiness plan
If you have assessed your affordability and determined that buying is the right move — but you are not quite ready — here is a structured plan to get there. Step one: Run your Money Check to establish your current financial baseline, including net worth, savings rate, and debt position. Step two: Set a target property price based on your realistic borrowing power (use our Borrowing Power Calculator) and the areas where you would actually want to live. Be honest about your lifestyle needs and non-negotiables. Step three: Calculate the total cash required — deposit (5% to 20% of target price), stamp duty (use our Stamp Duty Calculator), plus $15,000 to $20,000 for legal costs, inspections, moving, and a first-year maintenance buffer. Step four: Set up a dedicated savings plan with automatic weekly or fortnightly transfers to a high-interest savings account or consider the First Home Super Saver Scheme for tax-effective savings. Step five: Clean up your borrowing profile — pay off credit cards, reduce credit card limits, pay down personal loans, and avoid taking on new debt. Each dollar of consumer debt eliminated can increase your borrowing power by three to four dollars. Step six: Check your credit report through Equifax or illion for free — errors on your credit file can reduce your borrowing capacity or delay approval. Step seven: Start tracking property markets in your target areas so that when you are ready, you can move with confidence and recognise fair value. If you are employed and want to maximise your income before applying for a loan, check that you are being paid correctly at FairWork Mate. If you may be eligible for government assistance programs beyond the First Home Owner Grant, check at BenefitsMate.
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General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.
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