Financial Health Check Before Buying a House: Are You Ready?
Think you are ready to buy your first home? Run through this financial health check to make sure your savings, income, credit, and budget can handle home ownership.
How to know if you are financially ready to buy a home
Buying a home is the largest financial decision most Australians will ever make, and jumping in before you are truly ready can lead to years of financial stress. A comprehensive financial health check before purchasing should cover five key areas — your deposit, your borrowing capacity, your ongoing costs, your emergency buffer, and your financial stability. Let us start with the deposit. Most lenders require a minimum of 5% to 10% of the purchase price as a deposit, but putting down less than 20% means you will need to pay Lenders Mortgage Insurance, which can add $10,000 to $40,000 to your upfront costs depending on the loan amount. For a median-priced house in Sydney at $1.15 million, a 20% deposit is $230,000 — a figure that takes many buyers years to accumulate. In Melbourne, the median of $800,000 requires $160,000, while Brisbane at $750,000 requires $150,000. Beyond the deposit, you need to budget for stamp duty (which varies by state — use our Stamp Duty Calculator for exact figures), conveyancing fees ($1,500 to $3,000), building and pest inspections ($500 to $800), loan application fees ($200 to $600), and moving costs. In total, upfront costs beyond the deposit can add $20,000 to $50,000 depending on the property price and location. Before committing, run our Money Check tool to see your complete financial picture and determine whether you have enough buffer beyond your deposit and purchase costs to handle home ownership comfortably.
What lenders actually look at when assessing your loan
Understanding how lenders assess your application helps you prepare and avoid surprises. Banks use a serviceability buffer — currently set at 3% above the actual interest rate by APRA — to stress-test whether you can afford repayments if rates rise. This means if the current rate is 6%, the bank calculates whether you can afford repayments at 9%. They also apply the Household Expenditure Measure or use your declared living expenses, whichever is higher, to estimate your ongoing costs. Your borrowing capacity depends on your gross income, existing debts, number of dependents, living expenses, and credit history. A single person earning $90,000 with no debts might borrow $550,000 to $620,000, while a couple earning $160,000 combined could borrow $850,000 to $950,000. However, what the bank will lend you and what you can comfortably afford are very different things. A useful stress test is to calculate your mortgage repayments at 2% above the current rate and check whether that amount is less than 30% of your household take-home pay. If repayments at the higher rate would consume more than 30% of your take-home income, you risk mortgage stress if rates rise further. Lenders will also review your credit report, so check yours for free at least three months before applying. Any defaults, late payments, or excessive credit applications in the past five years can reduce your borrowing capacity or result in a higher interest rate. Use our Mortgage Calculator to model repayments at different interest rates and price points to find your comfortable range.
Hidden costs of home ownership most first buyers miss
The purchase price and mortgage repayments are just the beginning. Home ownership comes with a range of ongoing costs that many first-time buyers underestimate, leading to financial strain in the first few years. Council rates vary dramatically by location but typically range from $1,200 to $3,500 per year for a house. Water and sewerage rates add $800 to $1,500 per year. Building insurance is essential and costs $1,200 to $3,000 per year depending on the property type, location, and coverage level. If you are buying an apartment or townhouse, strata levies can range from $500 to $2,000 per quarter depending on the building's age, amenities, and maintenance requirements. Maintenance and repairs are the cost category most first buyers fail to budget for. A common rule of thumb is to set aside 1% to 2% of your property's value per year for maintenance — that is $8,000 to $16,000 per year on an $800,000 property. In the first year alone, you might need to replace appliances, fix plumbing issues, paint, or address problems discovered after settlement. Gardens, fences, roofing, and hot water systems all have finite lifespans and can cost thousands when they need attention. Utilities often increase when you move from a rental to a house — larger spaces cost more to heat and cool, and you are now responsible for all maintenance that a landlord previously covered. Total ongoing costs beyond mortgage repayments typically add $15,000 to $25,000 per year. Factor these into your budget before deciding whether you can afford a particular property. Our Budget Planner can help you model your post-purchase monthly expenses to ensure you are not stretching beyond your means.
First home buyer schemes and grants you should claim
Australian federal and state governments offer several schemes designed to help first home buyers enter the market, and failing to claim them means leaving money on the table. The First Home Owner Grant provides a one-off payment in most states — typically $10,000 to $30,000 — for purchasing or building a new home below a certain price threshold. Eligibility varies by state, so check the specific rules for your location. The First Home Super Saver Scheme allows you to withdraw voluntary super contributions (up to $50,000) for a first home deposit. Because super contributions are taxed at 15% rather than your marginal rate, this effectively gives you a tax saving of 17.5% to 30% on every dollar you contribute. If you are planning to buy in the next two to three years, maximising FHSSS contributions is one of the most tax-effective savings strategies available. Stamp duty concessions for first home buyers exist in every state and territory, with many offering full exemptions below certain price thresholds. In NSW, you pay zero stamp duty on properties up to $800,000. In Victoria, the exemption applies up to $600,000 with concessions to $750,000. These exemptions can save you $20,000 to $35,000. The Home Guarantee Scheme allows eligible buyers to purchase with as little as 5% deposit without paying Lenders Mortgage Insurance, with the government guaranteeing the difference up to 20%. Places are limited and allocated on a financial year basis. Use our Stamp Duty Calculator to see exactly what you will save in your state, and our Mortgage Calculator to model repayments with and without LMI. Check BenefitsMate for any additional government support you may be eligible for based on your income and circumstances.
Your pre-purchase financial checklist
Before making an offer on a property, work through this comprehensive financial checklist to ensure you are genuinely ready. Deposit — do you have at least 10% saved, ideally 20%? Is this money in accessible form, not locked in term deposits that have not matured? Emergency fund — beyond your deposit, do you have three to six months of expenses ($15,000 to $30,000) set aside as a buffer for unexpected costs in the first year of home ownership? Income stability — have you been in your current job for at least six months, ideally 12 months? Lenders prefer stable employment history. If you are self-employed, can you provide two years of tax returns showing consistent income? Debt — have you paid off credit cards, personal loans, and buy-now-pay-later balances? Every dollar of existing debt reduces your borrowing capacity. Credit score — have you checked your credit report for errors, defaults, or issues that could affect your application? Ongoing affordability — can you comfortably afford mortgage repayments at 2% above the current rate plus $15,000 to $25,000 in annual ownership costs without cutting into essentials? Lifestyle impact — have you honestly assessed what you will need to give up to afford home ownership, and are you willing to make those adjustments for the medium to long term? Run our Money Check tool to get an instant assessment of your financial readiness across all these dimensions. Use the Mortgage Calculator to model your specific scenario and the Stamp Duty Calculator to understand your upfront costs. If you are employed under an award and want to confirm your income entitlements before applying for a loan, check your rates with FairWork Mate.
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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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