Simple hacks to understand the home buying process

The home buying process involves three stages that overlap more than you might expect.

You need to understand your borrowing limit before you start looking at properties, get pre-approval sorted while you're inspecting homes, and know what happens between your offer and settlement day. Most confusion comes from treating these as separate steps rather than a continuous process where one feeds into the next.

How much can you borrow before you start looking

Your borrowing limit depends on your income, existing debts, living expenses, and the deposit you have available. Lenders assess your loan application at a rate that sits around 3 percentage points above the actual loan product rate. This buffer exists to confirm you can still meet repayments if interest rates climb.

Consider a buyer earning $95,000 a year with a $60,000 deposit and no debts. At current variable rates, they might qualify for a loan amount between $450,000 and $480,000 depending on the lender and their recorded living expenses. That puts their total budget somewhere between $510,000 and $540,000. Lenders look at your last three months of payslips, recent bank statements showing genuine savings, and your most recent tax return if you're self-employed. The difference between what one lender offers and another can be $30,000 or more on the same income and deposit, which matters when you're competing for properties in areas where every bit of borrowing capacity counts.

If you want a clearer picture of where you sit, our borrowing capacity tool can give you an estimate before you speak to anyone.

What pre-approval actually gives you

Pre-approval confirms a lender is willing to lend you a specific amount based on the documents you've already provided. It usually lasts between three and six months depending on the lender. Pre-approval is not a guarantee, but it does mean the lender has reviewed your income, debts, and deposit and decided you meet their lending criteria at that point in time.

Pre-approval gives you confidence when you're making an offer because you know a lender has already said yes in principle. It also speeds up the formal application once your offer is accepted, since most of the paperwork is already done. You still need a property valuation and a final credit check before unconditional approval, but you're much further along than someone starting from scratch after their offer is accepted.

Choosing between variable rate and fixed rate loans

A variable rate moves up or down in line with the lender's decisions, which are influenced by the Reserve Bank's cash rate and funding costs. A fixed rate locks your interest rate in for a set period, usually between one and five years. Once the fixed period ends, your loan automatically switches to the lender's standard variable rate unless you refinance or negotiate a new fixed term.

Variable rate loans typically come with an offset account, which is a transaction account linked to your home loan. Every dollar in the offset reduces the balance on which you're charged interest. If you have a $400,000 loan and $15,000 sitting in your offset, you only pay interest on $385,000. Fixed rate loans rarely include offset accounts, and when they do, the interest rate discount is usually smaller than the variable equivalent.

Split rate structures let you divide your loan between fixed and variable. You might fix 60 per cent of your loan amount for three years and leave 40 per cent variable with an offset attached. This gives you some protection against rate rises while keeping access to offset benefits and the flexibility to make extra repayments on the variable portion without penalty. We regularly see buyers using a split when they want certainty on most of their repayments but still want room to move if their income increases or they receive a windfall.

If you want to compare current offers across different loan products, take a look at the home loans page for a breakdown of how each structure works in practice.

What happens between offer acceptance and settlement

Once your offer is accepted, you move into the contract stage. You'll usually have a cooling-off period of a few business days depending on your state, during which you can withdraw from the contract for a small penalty. During this time, you should arrange building and pest inspections if your contract isn't already conditional on those reports.

Your lender orders a property valuation to confirm the home is worth what you've agreed to pay. If the valuation comes in lower than the purchase price, the lender will base your loan amount on the lower figure, which means you'll need a bigger deposit to cover the gap or renegotiate the price with the seller. Your solicitor or conveyancer handles the legal side, including title searches, contract review, and liaising with the seller's legal representative. Settlement usually occurs four to six weeks after contracts are exchanged, though this can be longer for new builds or shorter if both parties agree.

You'll need to organise home and contents insurance before settlement, and in some cases your lender will require proof of insurance before they release funds. Your conveyancer coordinates settlement day, which involves the transfer of funds and the formal registration of the property in your name. You'll receive the keys once settlement is confirmed, usually in the afternoon on settlement day.

Using the Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme lets eligible first home buyers purchase with a deposit of as little as 5 per cent without paying Lenders Mortgage Insurance. Housing Australia provides a guarantee to the lender, which brings your combined deposit and guarantee up to 20 per cent. You apply through a participating lender rather than directly through Housing Australia.

Property price caps vary by location. In Victoria, the cap is $950,000 in Melbourne and Geelong, and $650,000 in other areas. In New South Wales, the cap is $1,500,000 in Sydney, Central Coast, Newcastle, Wollongong and a handful of other regional centres, and $800,000 elsewhere. Both the purchase price and the lender's valuation need to sit at or below the cap for your postcode. The scheme applies to established homes, new builds, and apartments, and you can use it with a variable rate, fixed rate, or split loan depending on what the lender offers.

State and territory grants and stamp duty concessions can be used alongside the scheme in most cases. For example, a first home buyer in Victoria purchasing a new home under $750,000 can access the $10,000 First Home Owner Grant, pay no stamp duty, and use the 5% Deposit Scheme all on the same transaction. Check the specific rules for your state since some concessions have residency requirements or time limits.

What your solicitor or conveyancer does

Your solicitor or conveyancer reviews the contract of sale before you sign, checking for any unusual conditions or potential issues with the title. They conduct searches to confirm there are no liens, easements, or other encumbrances that could affect your use of the property. If the property is in a strata scheme, they'll review the strata report and check for outstanding levies or planned special levies that could affect your costs after settlement.

They also liaise with your lender to make sure all conditions are met before settlement, and coordinate the exchange of funds on settlement day. If anything goes wrong during the contract period, your conveyancer is the person who communicates with the seller's representative to resolve it. Conveyancing fees typically range from $1,200 to $2,500 depending on the complexity of the transaction and whether the property is in a strata scheme.

How offset accounts reduce interest without extra repayments

An offset account works like a regular transaction account but is linked to your home loan. The balance in your offset account is subtracted from your loan balance before interest is calculated each day. You don't earn interest on the money in the offset, but the interest you save on your home loan is almost always higher than the interest you'd earn in a standard savings account after tax.

For someone with a $500,000 loan at a variable interest rate and $20,000 in their offset account, the lender calculates interest on $480,000 instead of the full loan amount. Over a year, that saves several thousand dollars in interest without requiring you to make extra repayments or lock your money away. You can still access the funds in your offset account anytime, which gives you flexibility that extra repayments into the loan itself don't provide.

Not all home loan packages include a full offset. Some lenders offer partial offsets where only a percentage of your account balance is offset against the loan, usually 40 per cent or 60 per cent. Make sure you're clear on which type you're getting before you commit to a loan product.

Knowing when to lock in a fixed rate

Fixed rates make sense when you want certainty around your repayments for a set period, or when you expect variable rates to climb and want to lock in before that happens. Once you fix, your rate won't change for the term you've chosen, even if variable rates drop. That's the tradeoff for the certainty.

Most fixed rate loans limit how much extra you can repay each year, usually to around $10,000 or $30,000 depending on the lender. If you repay more than the allowed amount, you'll be charged break costs, which can be substantial if rates have fallen since you fixed. Fixed loans also come with restrictions on refinancing or selling the property before the fixed term ends. If you need to exit early, the lender calculates break costs based on the difference between your fixed rate and the current wholesale cost of funds.

In our experience, buyers who expect their income to stay steady and want predictable repayments tend to favour fixed rates, while buyers who expect bonuses or irregular income and want to repay faster lean toward variable or split structures. If you're unsure which structure suits your situation, call one of our team or book an appointment at a time that works for you.

What to expect on settlement day

Settlement is the day ownership of the property transfers from the seller to you. Your lender releases the loan funds to your conveyancer, who combines them with your deposit and pays the seller. The seller's lender (if they have one) is paid out, and any remaining funds go to the seller. Your conveyancer registers the transfer of title with the land titles office, which usually takes a few days to process, though you become the legal owner from the moment settlement completes.

You'll usually receive the keys in the afternoon on settlement day once your conveyancer confirms everything has gone through. If settlement is delayed for any reason, such as the seller's lender not releasing their discharge on time, you may not get the keys until the following day. This is uncommon but does happen, which is why you shouldn't book removalists or take possession until settlement is confirmed.

Your first home loan repayment will be due around a month after settlement, depending on the lender's cycle. You'll receive a letter or email from your lender within the first week or two after settlement confirming your loan details, repayment amount, and repayment date.

If you're ready to move forward or want to talk through your specific situation, call one of our team or book an appointment at a time that works for you.

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