Beginner's Guide to Buying a Townhouse as a First Home

What Makes a Townhouse Different for Finance Purposes

Townhouses attract the same lending criteria as detached houses in most cases. Banks assess them based on location, condition and marketability, not dwelling type. The difference appears when a townhouse sits in a development with more than six lots or requires strata insurance, which some lenders flag during serviceability checks.

Consider a buyer looking at a two-bedroom townhouse in Glen Iris. The property sits in a complex of eight. The lender confirms the owners corporation is registered, levies are current, and no major works are scheduled. The loan proceeds without additional conditions. If the same buyer targets a townhouse in a complex flagged for cladding rectification, the lender may decline or require a fuller valuation before proceeding. Strata records matter as much as the building itself.

Can You Buy a Townhouse with a 5% Deposit

You can buy a townhouse with a 5% deposit under the Australian Government 5% Deposit Scheme. The scheme guarantees the gap between your deposit and 20% of the property value, which removes the need for Lenders Mortgage Insurance. No income limits apply under the scheme from October 2025, and no annual place caps restrict applications.

In Victoria, the property price cap is $950,000 for capital city and regional centres. A townhouse in Camberwell at $900,000 would require a deposit of $45,000 plus settlement costs. The buyer applies through a participating lender, not directly through Housing Australia. Both the purchase price and the lender's valuation must fall at or below the cap for the application to proceed.

Fixed, variable and split loan structures may be available depending on the participating lender. Confirm available loan features directly with your broker or lender before lodging an application. The scheme can be combined with Victoria's stamp duty exemption or concession, which further reduces upfront costs for eligible buyers.

Victorian Stamp Duty Relief for First Home Buyers

Victoria offers a full stamp duty exemption on properties valued up to $600,000 and a sliding concession on properties between $600,001 and $750,000. The concession applies to both new and established townhouses, provided the property will be your principal place of residence. You must move in within 12 months of settlement and live there for at least 12 continuous months.

A buyer purchasing an established townhouse in Carnegie valued at $650,000 would receive partial relief under the sliding scale. A buyer purchasing a townhouse valued at $590,000 in the same suburb pays no stamp duty at all. Standard duty rates apply to properties valued above $750,000. The duty exemption or concession can be used alongside the Australian Government 5% Deposit Scheme without restriction.

Do You Qualify for the $10,000 First Home Owner Grant in Victoria

The $10,000 First Home Owner Grant in Victoria applies only to new homes valued up to $750,000. The grant does not apply to established townhouses. A new townhouse is one that has not been previously occupied or sold as a place of residence.

If you are purchasing a newly built townhouse off-the-plan or from a builder in Malvern East valued at $740,000, you qualify for the grant. If you are purchasing an established townhouse in the same suburb at the same price, you do not. The grant can be applied at settlement to reduce the cash you need to bring to the transaction. It is administered by the State Revenue Office Victoria and applied for through your solicitor or conveyancer before settlement.

How Offset Accounts Work with Townhouse Loans

An offset account is a transaction account linked to your home loan. The balance in the offset account reduces the interest charged on your loan without reducing the principal. If your loan balance is $800,000 and your offset account holds $30,000, you pay interest only on $770,000.

Offset accounts are typically available on variable rate loans but not on most fixed rate loans. Some lenders offer partial offset on fixed loans, where only a portion of the account balance offsets the loan. If you are comparing loan options for a townhouse purchase in Hawthorn, confirm whether the offset is full or partial and whether any monthly account fees apply. A full offset with no monthly fee delivers the most value if you maintain a consistent balance in the account.

If you plan to rent out the townhouse in future, an offset account allows you to keep savings separate from the loan while still reducing interest costs. This separation can simplify tax reporting compared to making extra repayments directly into the loan.

Fixed or Variable: What First Home Buyers Choose

First home buyers purchasing townhouses typically choose a variable rate or a split structure. A variable rate allows unlimited extra repayments, full offset access, and no break costs if you refinance or sell early. A fixed rate locks in repayments for a set term but usually restricts extra repayments and does not offer a full offset.

A split loan divides the balance between fixed and variable portions. A buyer with an $850,000 loan might fix $500,000 for three years and leave $350,000 variable. The fixed portion provides repayment certainty, while the variable portion retains flexibility for extra repayments and offset access. The structure suits buyers who expect irregular income or want to reduce debt faster without triggering break costs.

Your choice depends on your repayment strategy, not the property type. A townhouse in Brighton or a house in Balwyn both support the same loan structures. Discuss your income pattern and repayment intentions with your broker before selecting a rate type.

What Lenders Mortgage Insurance Costs on a 10% Deposit

Lenders Mortgage Insurance is charged when your deposit is less than 20% of the property value and you are not using a government guarantee scheme. The cost varies by lender, loan amount and deposit size. On a 10% deposit, LMI typically ranges from 2% to 4% of the loan amount, though this is a general guide only.

If you are purchasing a townhouse without using the 5% Deposit Scheme, the LMI premium is usually capitalised into the loan rather than paid upfront. Some lenders offer reduced or waived LMI for certain professions or deposit sources. If you have received a cash gift from a parent and can demonstrate genuine savings equivalent to 5% of the purchase price, some lenders may reduce the LMI premium even if your total deposit is only 10%.

The Australian Government 5% Deposit Scheme removes LMI entirely for eligible buyers, which is one reason the scheme is widely used by first home buyers purchasing townhouses in Melbourne.

Can You Use Gifted Funds for Your Townhouse Deposit

You can use gifted funds from an immediate family member as part of your deposit. Most lenders require you to demonstrate genuine savings equivalent to 5% of the purchase price in addition to the gift. Genuine savings are funds you have saved over at least three months, held in your name.

If your parents gift you $60,000 toward a townhouse deposit and you have saved $30,000 over six months, most lenders will accept the combined amount as your deposit. The lender will require a signed gift letter from your parents confirming the funds are a gift, not a loan, and that no repayment is expected. Some lenders also require a statutory declaration.

Gifted deposits are common among Melbourne buyers purchasing in suburbs like Caulfield North or Surrey Hills, where entry prices sit above the medians in outer suburbs. The gift does not replace the need for genuine savings unless you are using the 5% Deposit Scheme, which has different savings requirements.

Pre-Approval Before You Start Looking

Pre-approval confirms how much a lender is willing to lend you before you make an offer on a townhouse. It is based on your income, expenses, deposit, and credit history. Pre-approval is conditional and subject to a satisfactory property valuation and final credit assessment, but it gives you a clear budget and shows sellers you are a serious buyer.

A buyer with pre-approval for $850,000 can attend auctions or make offers on townhouses in Ashburton or Burwood with confidence that finance will not delay settlement. Pre-approval is usually valid for three to six months depending on the lender. If your financial situation changes during that period, the lender may reassess your application.

Apply for pre-approval before attending open inspections or engaging a conveyancer. It clarifies your budget and prevents wasted time on properties outside your borrowing capacity.

Ongoing Costs After You Buy the Townhouse

Owners corporation fees apply to most townhouses. These fees cover building insurance, common area maintenance, and administrative costs. The amount varies depending on the size of the complex and the level of shared facilities. A townhouse in a small complex of four may have quarterly fees of $800, while a townhouse in a larger development with a pool and shared gardens may have fees exceeding $1,500 per quarter.

Lenders include owners corporation fees in their serviceability assessment when calculating how much you can borrow. If your quarterly levy is $1,200, the lender treats that as an ongoing expense equivalent to $400 per month. Council rates, water rates, and building and contents insurance are additional costs that apply whether you own a townhouse or a detached house.

Budget for these costs before making an offer. Your broker or conveyancer can request a copy of the owners corporation certificate, which lists current levies and any planned special levies for major works.

Call one of our team or book an appointment at a time that works for you. We work with first home buyers across Melbourne and can structure your application to match your deposit, income and property choice.

Frequently Asked Questions