Beginner's Guide to Property Purchase Preparation

Understanding Your Deposit Options Before You Start Looking

Your deposit determines which loan products you can access and how much you'll pay to set up the loan. At a minimum, you need 5% of the purchase price as genuine savings or eligible gifted funds, but the deposit range you choose affects both your upfront costs and ongoing loan structure.

The First Home Guarantee, expanded from October last year, removes income caps and location restrictions. This allows eligible buyers to purchase with a 5% deposit without paying Lenders Mortgage Insurance. For a property at Kew's current median, this federal scheme can save tens of thousands in LMI fees that would otherwise apply to any loan above 80% of the property value.

Consider a buyer who has saved $60,000 and receives a $20,000 gift from parents. That gives them $80,000 to work with. Under the First Home Guarantee, the full amount can go toward the deposit and costs, rather than needing to hold back a large portion for LMI. The application still requires proof that the gifted amount comes from an acceptable source, typically a signed statutory declaration and bank statements from the donor.

What Counts as Genuine Savings and What Doesn't

Lenders define genuine savings as funds you've accumulated over at least three months in your own accounts. This includes balances in transaction accounts, term deposits, and offset accounts. Funds withdrawn from superannuation under the First Home Super Saver Scheme also qualify, as do shares or managed funds held for the required period.

What doesn't qualify includes recent cash deposits without a clear audit trail, funds borrowed from personal loans or credit cards, and most forms of sale proceeds from assets like cars unless documented properly. One-off bonuses can count if they've been held in your account for three months before application. Tax refunds are treated the same way.

Gifted deposits are accepted by most lenders but require documentation. The person providing the gift must confirm in writing that the funds are not a loan and do not need to be repaid. Some lenders will also want to see that the donor can afford to give the amount without financial hardship, particularly if the gift represents a large portion of the deposit.

How Victoria's Stamp Duty Concession Works for Kew Buyers

Victoria offers full stamp duty exemption on properties up to $600,000 and reduced duty on a sliding scale up to $750,000. Given Kew's property values, most buyers will be purchasing above these thresholds and paying full stamp duty, which at current median levels can exceed $40,000.

The Victorian Homebuyer Fund is a shared equity scheme where the state government contributes up to 25% of the purchase price. This reduces the amount you need to borrow and can bring a property within reach if your borrowing capacity or deposit is limiting your options. The scheme is income tested, with caps for single buyers and couples, and the government holds a corresponding share of the property until you buy them out or sell.

In our experience, buyers in established inner-east suburbs like Kew are more commonly looking at properties in the $900,000 to $1,400,000 range, which means they pay standard stamp duty and focus on maximising their deposit to reduce Lenders Mortgage Insurance rather than relying on state grants. The $10,000 First Home Owner Grant only applies to new homes valued under $750,000, which excludes most stock in Kew.

Building a Strong Home Loan Application

Your application needs to demonstrate stable income, manageable liabilities, and a clear savings history. Lenders assess your capacity to service the loan under a stress-test interest rate that sits well above current variable rates, so your current rent or living expenses are not a reliable guide to what you can borrow.

Start by reviewing your last three to six months of transaction statements. Lenders will scrutinise these for regular gambling, buy-now-pay-later usage, and unexplained cash deposits. They'll also look at how you manage existing credit, including credit cards, car loans, and any outstanding HECS debt. Even if you pay your credit card in full each month, the lender will assess serviceability based on the card's full limit, not your actual spend.

If you're purchasing in Kew, proximity to schools like Ruyton Girls' School or Xavier College, and the suburb's reputation for heritage homes, often means you're competing in a market where unconditional offers or short settlement periods are common. A strong pre-approval gives you certainty before you bid at auction or make an offer, but that pre-approval is only as reliable as the information you provide upfront.

Choosing Between Fixed and Variable Interest Rates

A variable interest rate moves with the market, which means your repayments can increase or decrease. It also gives you access to features like an offset account and the ability to make unlimited extra repayments. A fixed interest rate locks your rate for a set period, typically one to five years, which provides repayment certainty but usually restricts extra repayments and removes offset functionality during the fixed term.

Many first home buyers split their loan, fixing a portion for rate certainty while keeping the rest variable for flexibility. The decision depends on your cash flow, risk tolerance, and whether you expect to have irregular income or lump sums to put toward the loan. If you value predictable repayments and plan to pay the minimum during the fixed period, fixing a larger portion makes sense. If you expect to receive bonuses, commissions, or other windfalls, keeping a variable portion with an offset account allows you to reduce interest without losing access to those funds.

There's no penalty for paying out a variable rate loan early, but breaking a fixed rate loan before the term ends can trigger significant break costs if rates have fallen since you fixed. This becomes relevant if you sell, refinance, or want to access equity before the fixed term expires.

What Happens During Pre-Approval and Formal Approval

Pre-approval is a conditional assessment based on the documents and information you provide. The lender reviews your income, liabilities, credit history, and savings, then issues an approval valid for three to six months. This allows you to shop with confidence, but it's not a funding guarantee. Formal approval occurs once you have a signed contract and the lender values the property.

The valuation is where some buyers encounter problems. If the lender's valuer assesses the property below your purchase price, the loan amount is calculated on the lower figure, which increases the deposit you need to proceed. In Kew, where period homes and character properties are common, valuation discrepancies can occur if recent comparable sales are limited or the property has unique features that don't translate directly into market value.

Once formal approval is granted and all conditions are met, the lender prepares loan documents for signing. Settlement usually occurs four to eight weeks after the contract is signed, depending on what was negotiated. Your broker and conveyancer will coordinate the final steps, including arranging building insurance, which must be in place before settlement.

Final Steps Before You Apply

Before submitting your application, confirm that your employment is stable and documented. Lenders typically require payslips covering the most recent three months, and if you've recently changed jobs, a letter from your employer confirming your role, salary, and employment type. If you're self-employed, you'll need tax returns and financials, which usually means waiting until you've been trading for at least one full financial year.

Check your credit file through a free service to identify any defaults, missed payments, or errors that could affect your application. If you've had credit issues in the past, some lenders are more flexible than others, and structuring your application with the right lender from the outset avoids unnecessary declines.

Make sure the property you're considering is financeable. Lenders have restrictions on certain property types, including apartments with serviced apartment agreements, properties on leasehold title, and units in buildings with known cladding or structural issues. In Kew, most stock is traditional housing on freehold title, but it's still worth confirming before you commit to a purchase.

Call one of our team or book an appointment at a time that works for you. We'll review your situation, calculate your borrowing capacity, and structure your application to give you the strongest position before you start looking.

Frequently Asked Questions