Understanding the Basics of Pre-Purchase Planning

Sorting Through Your Deposit Options

Your deposit can come from multiple sources, and knowing which combinations work before you start searching gives you clarity on your budget. Genuine savings, gifts from family, proceeds from selling shares or other assets, and eligible government grants all count toward your deposit. Lenders typically want to see at least 5% genuine savings held in your account for three months, though this varies.

A buyer in Mornington looking to use the Australian Government 5% Deposit Scheme would need their full 5% ready at contract, and that deposit needs to meet the lender's verification requirements. If part of the deposit is a gift, most lenders will ask for a signed statutory declaration from the donor confirming the funds are a genuine gift with no repayment expectation. That declaration usually needs to be provided at the time you submit your home loan application.

In our experience, buyers who map out exactly where their deposit is coming from and which documents they will need to prove the source tend to move faster once they find a property. If you are relying on a government grant, confirm the exact timing of when the grant is paid, because some are only released at settlement rather than at contract.

How Government Schemes Change Your Borrowing Position

The Australian Government 5% Deposit Scheme removes the need for Lenders Mortgage Insurance, which reduces your upfront costs but does not change the amount a lender is willing to lend you. Your borrowing capacity still depends on your income, expenses, and existing debts. The scheme also comes with property price caps: $950,000 for Melbourne and slightly different caps for regional areas. Mornington is classified as part of the Melbourne region for these purposes, so the $950,000 cap applies here.

Consider a buyer earning $85,000 annually with minimal debts. Under the scheme, they could purchase with a 5% deposit and avoid paying LMI, but their maximum borrowing amount would still be calculated using the same income and expense assessment every lender applies. The deposit scheme does not increase what you can borrow; it reduces what you need to have saved.

Victoria also offers stamp duty concessions. A full exemption applies to properties up to $600,000, with a sliding scale concession from $600,001 to $750,000. Above $750,000, standard rates apply. These concessions apply to both new and established homes, provided the property will be your principal place of residence. If you are buying in Mornington at the upper end of the market, knowing where you sit relative to that $750,000 threshold helps you estimate your upfront costs.

Timing Pre-Approval Around Your Property Search

Pre-approval gives you a conditional commitment from a lender based on your financial position at the time of assessment. It is typically valid for three to six months depending on the lender. If you apply too early, your pre-approval may expire before you find a property. If you apply too late, you risk losing a property to another buyer who can move faster.

The better approach is to get pre-approval when you are actively searching and expect to make an offer within the next two to three months. That timeframe works particularly well in areas like Mornington, where stock can move quickly during spring and summer but may sit longer in winter. First home buyers who already have pre-approval in place can make unconditional offers or negotiate shorter finance clauses, which sellers often prefer.

Your pre-approval will include a maximum borrowing amount, but that figure is based on the information you provide at the time. If your income, employment, or debts change before you find a property, you will need to update your broker and possibly reapply. Similarly, if interest rates rise between your pre-approval and your formal application, your borrowing capacity may reduce.

Fixed Versus Variable Rate Considerations for Your First Purchase

You can choose a fixed rate, a variable rate, or a split loan that combines both. A fixed rate locks in your interest rate for a set period, usually one to five years, which makes your repayments predictable. A variable rate moves with the market, which means your repayments can increase or decrease. Variable loans generally offer more flexibility, including features like offset accounts and the ability to make extra repayments without penalty.

In a scenario where a buyer fixes their rate for three years, they know exactly what their repayments will be during that period, but they also lose the ability to make large extra repayments or access an offset account in most cases. If rates fall during the fixed period, they do not benefit. If rates rise, they are protected. The decision depends on whether certainty or flexibility is more important to you at this stage.

Some buyers split their loan, fixing a portion and leaving the rest variable. This approach provides some repayment certainty while maintaining access to features like an offset account on the variable portion. For first home buyers with irregular income or those planning to make lump sum repayments from bonuses or other windfalls, keeping at least part of the loan variable makes sense.

Documents You Will Need to Provide

Lenders require proof of income, savings, identification, and details about the property you intend to purchase. For income, that typically includes payslips covering the most recent pay period, your two most recent tax returns if you are self-employed, and your most recent notice of assessment from the ATO. If you have a spouse or partner included on the application, they will need to provide the same documentation.

For savings, lenders want to see statements covering at least the past three months for every account that holds part of your deposit. If you are using a gift, the signed declaration from the donor and evidence that the funds have been transferred into your account are both required. If you are applying under the Australian Government 5% Deposit Scheme, additional declarations may be required to confirm you meet the eligibility criteria.

Once you have a property under contract, the lender will also require a copy of the signed contract of sale and, in most cases, a valuation of the property. The valuation is usually organised by the lender, but you may be asked to pay the fee upfront. If the valuation comes in below the purchase price, the lender will base their loan amount on the lower figure, which can affect your deposit requirement.

Balancing Purchase Costs Alongside Loan Repayments

Your budget needs to cover more than just the deposit and the property price. Conveyancing fees, building and pest inspections, and any applicable stamp duty all need to be paid before or at settlement. Even with a full stamp duty exemption, you should expect to set aside several thousand dollars for these additional costs.

Borrowing capacity calculators focus on your ability to service the loan, but they do not account for the upfront costs of purchasing. We regularly see buyers who can service a loan comfortably but have underestimated the cash required at settlement. If you are using all your savings for the deposit, you will need to find another source of funds for these costs or factor them into your borrowing amount if the lender allows it.

For buyers purchasing in Mornington, where the market includes a mix of older homes close to the foreshore and newer builds further inland, inspection costs can vary. An older property may require more detailed building reports, and those reports may flag issues that affect your willingness to proceed or your ability to negotiate on price. Setting aside a buffer for these costs gives you room to make informed decisions without financial pressure.

Why Your Borrowing Capacity Changes Between Lenders

Each lender applies a different interest rate buffer and uses different benchmarks for assessing your living expenses. One lender might assess your capacity using a 3% buffer on top of the current interest rate, while another uses 3.5%. Similarly, one lender might accept your declared living expenses if they seem reasonable, while another applies a minimum expense floor based on your household size and income.

Those differences can result in a variation of tens of thousands of dollars in borrowing capacity. A buyer with $90,000 in household income, modest debts, and low declared expenses might be approved for $650,000 with one lender and $680,000 with another. That difference could determine which properties in Mornington are within reach, particularly in a market where most homes close to the village or foreshore exceed $700,000.

Working with a broker allows you to understand which lenders are likely to give you the highest borrowing capacity based on your specific financial position. That does not mean choosing the lender who will lend you the most, but it does mean understanding your options so you can search within a realistic range. If you plan to apply for refinancing in the future, knowing how different lenders assess capacity also helps you make decisions about structuring your loan now.

Call one of our team or book an appointment at a time that works for you. We can walk through your deposit sources, government scheme eligibility, and lender options so you know exactly where you stand before you start searching.

Frequently Asked Questions