Home Loans and What Not to Do When Buying a House

Applying Before You Know What You Can Borrow

Work out your borrowing capacity before you start looking at properties. Lenders assess your income, expenses, existing debts and deposit size to calculate how much they'll lend you. They also test your serviceability at a rate 3 percentage points above the actual loan rate, so even if you're applying for a variable rate of 6%, the lender will assess whether you can afford repayments at 9%. If your gross income is $90,000 and you have a car loan with $8,000 outstanding and monthly repayments of $400, that existing commitment reduces how much a lender will let you borrow for a home loan. Knowing your borrowing capacity means you can focus on properties within reach and avoid wasting time on listings you can't finance.

Consider a buyer earning $95,000 annually with no dependents, no debts, and monthly living expenses around $2,200. With a 10% deposit saved, a lender runs the serviceability assessment and confirms a borrowing limit. That buyer can now search within a defined range and make offers with confidence. Skipping this step and falling in love with a property outside your limit leads to rejected applications and missed opportunities.

Not Getting Pre-Approval in a Competitive Market

Pre-approval gives you a conditional commitment from a lender before you make an offer. It shows sellers and agents you're a serious buyer with finance lined up, and in Sydney's inner west and northwest suburbs where multiple offers are common, that can be the difference between your offer being accepted or passed over. A home loan pre-approval is usually valid for three to six months and lets you move quickly when you find the right property.

Pre-approval is not a guarantee. Lenders reassess your financial position and the property before final approval, so if your income drops, you take on new debt, or the property valuation comes in lower than the purchase price, the lender can withdraw the offer. But walking into an auction or private sale with pre-approval in hand puts you ahead of buyers who are still gathering documents or haven't spoken to a lender.

Choosing a Loan Based on Rate Alone

The advertised interest rate is important, but it's not the only factor that affects what you'll pay over the life of the loan. Lenders offer different home loan products with varying features, fees and flexibility. A variable rate home loan might have a lower headline rate but charge a higher annual fee, or restrict extra repayments, or lack an offset account. A fixed interest rate home loan locks in your rate for a set period, usually one to five years, which can provide certainty if you prefer stable repayments, but you'll face break costs if you pay out the loan early or refinance before the fixed term ends.

A split loan lets you fix part of your borrowing and keep part variable. If you borrow $600,000, you might fix $400,000 at a set rate for three years and keep $200,000 on a variable rate with an offset account linked to it. Your savings in the offset reduce the interest charged on the variable portion, while the fixed portion gives you predictable repayments. Compare home loan features like offset accounts, redraw facilities, the ability to make extra repayments without penalty, and portability if you plan to sell and buy again within a few years. Rate discounts are often negotiable, especially if you have a solid deposit and clean credit history, so don't assume the advertised rate is the final rate.

Ignoring Lenders Mortgage Insurance Costs

If your deposit is less than 20% of the property value, most lenders require you to pay LMI. This insurance protects the lender if you default, not you, and the premium can add thousands or tens of thousands of dollars to your upfront costs. The premium increases as your loan to value ratio rises. LMI is usually capitalised into the loan amount, meaning you pay interest on it over the life of the loan, but it can also be paid upfront.

The Australian Government 5% Deposit Scheme can help you avoid LMI if you're a first home buyer and meet the eligibility criteria. The scheme covers eligible purchases in Sydney and regional centres in New South Wales up to $1,500,000, and Housing Australia guarantees up to 15% of the property value so your 5% deposit plus the guarantee reaches the 20% threshold without LMI. Applications go through participating lenders, and there are no income caps or annual place limits. If you're buying an established home in Parramatta or Merrylands and the property is within the price cap, this scheme can save you a significant amount compared to paying LMI on a 5% or 10% deposit loan.

Overlooking Stamp Duty Concessions and Grants

New South Wales offers a full transfer duty exemption on properties valued up to $800,000 for first home buyers, with a sliding concession on properties between $800,000 and $1,000,000. If you're buying vacant land to build, a full exemption applies on land valued up to $350,000, with a concession phasing out at $450,000. The first home owner grant in New South Wales is $10,000, but it only applies to new builds or substantially renovated homes with a purchase price cap of $600,000, or a combined land and build cap of $750,000. The grant does not apply to established homes.

If you're buying an established home in Auburn or Granville and the property is under $800,000, the stamp duty exemption can save you more than $30,000. Missing out on that concession because you didn't check your eligibility or failed to apply correctly is a costly mistake. These concessions can generally be used alongside the Australian Government 5% Deposit Scheme, so you can combine a low deposit with reduced or zero stamp duty if you meet the criteria for both.

Not Comparing Loan Products Across Lenders

Different lenders have different appetites for risk, different serviceability calculators, and different loan products. One lender might offer a lower rate but stricter serviceability criteria, while another might be more flexible on income assessment but charge higher fees. A major bank might give you a rate discount if you hold other accounts with them, while a non-major lender might have a lower base rate and more competitive features but less brand recognition.

Accessing home loan options from banks and lenders across Australia means you're not limited to the first offer you receive. In our experience, buyers who compare products across multiple lenders end up with a loan structure that fits their goals, whether that's minimising interest costs, maximising offset benefits, or keeping the option to pay off the loan early without penalty. A broker can help with this process by presenting options from a panel of lenders and explaining the trade-offs between rate, features and flexibility.

Fixing Your Entire Loan Without Understanding Break Costs

A fixed rate home loan can appeal if you want certainty, but locking in your entire loan amount for three or five years creates risk if your circumstances change. If you need to sell the property, refinance to access equity, or pay out the loan before the fixed term ends, the lender will charge break costs. These costs compensate the lender for the difference between the fixed rate you're paying and the current wholesale rate the lender can earn by reinvesting the funds. Break costs can run into tens of thousands of dollars depending on how much rates have moved and how much time is left on your fixed term.

A split rate loan reduces this risk. Fix the portion of your borrowing that you want stability on, and keep the rest variable so you have flexibility to make extra repayments, access offset benefits, and avoid break costs if you need to refinance or sell. If you're buying in Parramatta and you expect your income to increase or you plan to use savings to pay down the loan faster, keeping a variable portion gives you that flexibility without giving up rate certainty entirely.

Skipping the Loan Structure Conversation

How you structure your home loan affects how quickly you build equity, how much interest you pay, and how much flexibility you have down the track. Most owner occupied home loans are principal and interest, meaning each repayment reduces the loan balance and pays the interest charged. Interest only loans are less common for owner occupiers but can suit buyers who want lower repayments in the short term, though you're not reducing the loan balance during the interest only period so you'll pay more interest over the life of the loan.

An offset account linked to your variable rate home loan can reduce the interest you pay without locking funds into the loan. Every dollar in the offset is subtracted from your loan balance before interest is calculated, so if you have a $500,000 loan and $30,000 in a linked offset, you only pay interest on $470,000. Your repayments stay the same, but more of each repayment goes toward reducing the principal. This improves your equity position faster and gives you access to your savings if you need them. Not every loan product includes an offset, and some lenders charge a higher rate or annual fee for loans with offset accounts, so weigh the cost against the benefit.

Call one of our team or book an appointment at a time that works for you. We'll talk through your situation, run the numbers, and help you set up a home loan structure that makes sense for your goals and your timeline.

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