Do you know what to prepare before applying for a loan?

What actually sits on a first home buyer checklist

Lenders approve applications when they can verify income, confirm you can service the loan, and satisfy themselves the property represents acceptable security.

In our experience, buyers who prepare these three areas before lodging an application move through pre-approval and formal approval faster and with fewer delays. Consider a buyer who applies without payslips from the last three months because they assume a salary letter will cover it. The lender requests the payslips, the buyer scrambles to obtain them from an employer who takes a week to respond, and the timeline stretches. The lender was always going to ask for those documents. Preparing them at the outset keeps the process moving.

Income verification usually requires three recent payslips, notice of assessment from the ATO for the last financial year, and bank statements covering the past three months that show salary credits. If you run your own business or work as a contractor, lenders will ask for two years of tax returns, financials prepared by an accountant, and business bank statements. Self-employed applications take longer to assess because there are more documents to review and the income calculation involves averaging and adjustments.

Savings need to show at least three months of consistent balances. Lenders call this genuine savings. A deposit that appears in your account the week before you apply will prompt questions about whether it was a loan or a gift. If family is contributing, a statutory declaration confirming the funds are a genuine gift and do not need to be repaid is usually required. Deposits below 20% will attract Lenders Mortgage Insurance, which protects the lender if you default. The premium is added to your loan balance or paid upfront.

How the Australian Government 5% Deposit Scheme changes the deposit requirement

The scheme allows eligible buyers to purchase with a 5% deposit without paying LMI because Housing Australia guarantees the shortfall between your deposit and the 20% the lender would normally require.

Applications are made through participating lenders, not directly through Housing Australia. You select a property, apply through a broker or direct with a participating lender, and the lender assesses your application under their usual credit criteria. The property must fall below the price cap for your location. In NSW, the cap is $1,500,000 for capital city and regional centres, and $800,000 for other areas. Both the purchase price and the lender's valuation must sit at or below the cap.

In a scenario like this: a buyer in the Hills District finds a unit priced at $750,000 and has saved $40,000. Under the scheme, they need $37,500 as a 5% deposit. The remaining $2,500 covers part of the settlement costs, which include conveyancing, building and pest inspections, and loan establishment fees. Without the scheme, the same buyer would need a 20% deposit of $150,000 to avoid LMI, or pay an LMI premium that could add another $15,000 to $20,000 to the loan if borrowing with a 5% deposit outside the scheme.

The First Home Guarantee Scheme does not restrict loan features. You can access offset accounts, redraw facilities, fixed or variable rates, or split loan structures depending on what the participating lender offers. Confirm available features with the lender before you apply.

What the stamp duty concession in NSW actually covers

NSW provides a full transfer duty exemption on properties valued up to $800,000 for eligible first home buyers, with a sliding concession for properties between $800,001 and $1,000,000.

The concession applies to both new and established homes. You need to move into the property within 12 months of settlement and live there as your principal place of residence for at least 12 continuous months. If you purchase an apartment in Hornsby valued at $780,000, the full exemption removes a stamp duty bill that would otherwise sit around $30,000. That saving can be redirected to your deposit, furniture, or kept as a buffer for the first year of ownership.

Vacant land qualifies for a full exemption up to $350,000, with a concession available for land valued between $350,001 and $450,000. If you are buying land and building, the stamp duty relief on the land portion still applies as long as you meet the eligibility criteria and intend to occupy the completed home.

Do you need pre-approval before you start looking

Pre-approval tells you what you can borrow, which lenders are willing to lend to you, and what deposit you need to proceed.

Without it, you are guessing at price ranges and risk wasting time inspecting properties you cannot afford or making offers that will not be supported by a lender. Pre-approval is conditional and usually valid for three to six months. The lender assesses your income, expenses, existing debts, and credit file, then issues a letter confirming the amount they are prepared to lend subject to property valuation and final checks.

Buyers sometimes assume they will be approved for the maximum they can borrow under serviceability calculations, but that is rarely the amount you should borrow. Lenders test serviceability at a buffer rate, usually 3% above the actual interest rate, to make sure you can still afford repayments if rates rise. That means a loan assessed at 9% today might sit on a repayment schedule calculated at closer to 6% once you settle. Your actual repayments will be lower initially, but the lender wants proof you could manage the higher figure.

Borrowing capacity depends on income, debts, living expenses, and the number of dependents you have. A buyer earning $95,000 with no debts and low fixed expenses will have a higher borrowing limit than someone on the same income carrying a $15,000 car loan and a $4,000 credit card limit. Lenders assess credit card limits as if they are fully drawn, even if the card sits at zero.

How interest rate structures affect what you pay each month

A variable rate moves with the market. If the Reserve Bank changes the cash rate or your lender adjusts their pricing, your repayment changes.

A fixed rate locks in your interest rate for a set period, usually one to five years. Your repayment stays the same during that period regardless of what happens to rates in the market. Fixed loans typically come with restrictions on extra repayments and may not include offset accounts or redraw facilities during the fixed term. When the fixed period ends, the loan reverts to a variable rate unless you negotiate a new fixed term.

Some buyers use a split loan structure, fixing part of the loan and leaving the rest variable. This approach gives you stable repayments on the fixed portion while retaining flexibility and access to features such as an offset account on the variable portion. There is no formula that works for everyone. The choice depends on your income stability, risk tolerance, and whether you expect to make extra repayments.

An offset account is a transaction account linked to your home loan. The balance in the offset reduces the amount of interest charged on the loan. If you have a $500,000 loan and $20,000 in the offset, you pay interest on $480,000. Every dollar in the offset saves you interest at your loan rate, which is usually higher than the interest you would earn in a savings account. Offset accounts are typically available only on variable rate loans.

What settlement costs add to the amount you need upfront

Buyers focus on the deposit and forget that settlement involves additional costs that need to be paid before you take ownership.

Conveyancing usually costs between $1,500 and $2,500 depending on the complexity of the transaction and whether the property is a house, unit, or vacant land. Building and pest inspections run around $500 to $800 combined. Loan establishment fees vary by lender but typically sit between $300 and $600. Mortgage registration, title search, and other disbursements add another few hundred dollars.

If you are buying a strata property, the conveyancer will also arrange a strata report, which costs around $200 to $300. This report shows levies, any disputes or defects noted in strata records, and upcoming works that might increase fees. Lenders require proof that strata levies are up to date before they will settle.

These amounts sit outside the deposit. A buyer with a 5% deposit on a $650,000 purchase needs $32,500 for the deposit and another $4,000 to $5,000 for settlement costs. If you are using the Australian Government 5% Deposit Scheme, your deposit is covered at 5%, but the settlement costs remain.

Where buyers in NSW can access further support

NSW does not currently offer a first home owner grant for established homes. The $10,000 grant applies only to new builds or substantially renovated homes with a purchase cap of $600,000 or a combined land and build cap of $750,000.

The First Home Super Saver Scheme allows you to make voluntary contributions into your super fund and withdraw up to $50,000 to put toward a deposit. Contributions are taxed at 15% rather than your marginal rate, which for most buyers creates a tax saving. You apply to the ATO for a determination, and once approved, the funds are released to you. The scheme works alongside other grants and concessions and does not affect your eligibility for the stamp duty exemption or the 5% deposit scheme.

If you have equity in another asset or a parent is willing to provide security, a parental guarantee can reduce or remove the need for a cash deposit. The guarantor uses equity in their own home to cover part of the deposit or LMI. The guarantee is usually limited to a fixed amount and can be removed once you build enough equity through repayments or property value growth. This structure needs careful documentation and independent legal advice for the guarantor. More detail on how these arrangements work can be found under parental guarantee loans.

Why your credit file matters before you lodge an application

Lenders check your credit file during the assessment process. Late payments, defaults, court judgments, and multiple credit applications in a short period all affect how lenders view your application.

A default over $500 that remains unpaid will usually result in a decline from most major lenders. Paid defaults are treated less harshly, but lenders still want an explanation. If you had a default from a phone bill you forgot about three years ago, pay it, obtain a letter of clearance, and include that with your application. Unpaid defaults need to be cleared before most lenders will proceed.

Every credit application you make leaves an enquiry on your file. Applying for multiple credit cards or car loans in the months before you apply for a home loan signals risk. Lenders interpret multiple enquiries as either financial stress or poor planning. If you are six months away from applying for a home loan, avoid opening new credit accounts, increasing credit card limits, or applying for store finance.

You can request a free copy of your credit file from Equifax, Experian, or illion. Check it at least three months before you plan to apply so you have time to address anything that needs fixing.

Call one of our team or book an appointment at a time that works for you at Personalised Finance. We will walk through your income, savings, and what you need to prepare, then structure the application to suit your situation and the lenders most likely to approve it.

Frequently Asked Questions