Home Loans in Australia — Everything You Need to Know Before You Apply

Whether you’re buying your first home, refinancing an existing loan, or investing in property, getting the right home loan can save you tens of thousands of dollars over the life of your mortgage.

Australia’s home loan market is one of the most competitive in the world — which is great news for borrowers, but it also means the choices can feel overwhelming. Fixed or variable? Principal and interest or interest only? Bank or non-bank lender?

This guide cuts through the noise and gives you a clear, honest picture of how Australian home loans work, what lenders are actually looking for, and how to find the right loan for your situation.

How Much Can You Borrow?

Your borrowing capacity depends on several factors that lenders assess together:

Income — Your gross income from employment, self-employment, rental properties, investments or government payments. Lenders typically allow you to borrow up to 6-7 times your annual income, though this varies significantly between lenders.

Expenses — Lenders scrutinise your living expenses, existing debts, credit card limits and other financial commitments. Since 2019, banks have been required to assess your actual expenses rather than using a benchmark figure.

Deposit — Most lenders require a minimum 5-10% deposit, though 20% is the threshold to avoid Lenders Mortgage Insurance (LMI). LMI protects the lender — not you — and can add tens of thousands to the cost of your loan.

Credit history — Your credit score affects both your approval chances and the interest rate you’re offered. A strong credit history opens more doors and gets you better rates.

Employment stability — Most lenders prefer at least 3-6 months in your current role for PAYG employees, or 2 years of tax returns for self-employed borrowers.

Types of Home Loans in Australia

Variable Rate Home Loans

The interest rate moves up and down with the market, typically following the Reserve Bank of Australia’s cash rate decisions. When rates fall, your repayments drop. When rates rise, they increase.

Best for: Borrowers who want flexibility — variable loans typically allow extra repayments and redraws without penalty.

Fixed Rate Home Loans

Your interest rate is locked in for a set period — usually 1 to 5 years — regardless of what happens to the cash rate. Gives you certainty over your repayments.

Best for: Borrowers on tight budgets who need predictability, or those who believe rates will rise during the fixed period.

Split Loans

Part of your loan is fixed, part is variable. You get some certainty and some flexibility.

Best for: Borrowers who want the best of both worlds.

Interest Only Loans

You pay only the interest for a set period (typically 1-5 years), not the principal. Your repayments are lower but you’re not reducing your debt.

Best for: Property investors managing cash flow, or borrowers expecting a significant income increase.

Low Doc Loans

Designed for self-employed Australians who can’t provide traditional income documentation like payslips. You declare your income with an accountant’s letter or BAS statements instead.

Best for: Self-employed borrowers, contractors and business owners.

Non-Conforming Home Loans

For Australians who don’t meet standard lending criteria — due to bad credit, defaults, irregular income or other factors. Rates are higher to reflect the additional risk, but these loans give people access to homeownership who’d otherwise be shut out.

Best for: Borrowers with imperfect credit histories who are working toward mainstream finance.

What Is LMI and Can You Avoid It?

Lenders Mortgage Insurance (LMI) is a one-off premium charged when you borrow more than 80% of a property’s value. It can cost anywhere from $5,000 to $35,000+ depending on your loan size and deposit amount — and it’s added to your loan, meaning you pay interest on it too.

Ways to avoid LMI:

Save a 20% deposit
Use a guarantor (a family member who uses equity in their own property to support your loan)
Access the First Home Guarantee (previously First Home Loan Deposit Scheme) — eligible first home buyers can purchase with as little as 5% deposit with no LMI, as the government guarantees the remaining portion
Some professions (doctors, lawyers, accountants) may be exempt from LMI with certain lenders even with deposits below 20%

The First Home Buyer’s Checklist

If you’re buying your first home in Australia, you may be eligible for significant government assistance:

First Home Owner Grant (FHOG) — A one-off payment available in most states for eligible first home buyers purchasing or building a new home. Amounts vary by state, typically $10,000–$30,000.

First Home Guarantee — Buy with as little as 5% deposit with no LMI, supported by a government guarantee. Places are limited each financial year.

Stamp Duty Concessions — Most states offer reduced or waived stamp duty for first home buyers up to certain property value thresholds.

First Home Super Saver Scheme — Save for your deposit inside your superannuation fund and access concessional tax treatment on up to $50,000 of voluntary contributions.

Eligibility criteria vary by state and scheme, so it’s worth checking your state revenue office website for current conditions.

What Lenders Are Actually Looking For

Here’s what happens when a lender assesses your home loan application — and what you can do to put your best foot forward.

The 5 C’s of credit assessment:

Capacity — Can you afford the repayments? Lenders stress-test your ability to service the loan at a rate typically 3% above the current rate to ensure you can handle rate rises.

Capital — How much are you contributing? A larger deposit demonstrates financial discipline and reduces the lender’s risk.

Credit — What does your credit history show? Lenders check your credit report from agencies like Equifax and Experian. Even a single missed payment in the past two years can affect your application.

Collateral — What’s the security? The property you’re buying is the lender’s security. They’ll conduct a valuation to confirm it’s worth what you’re paying.

Character — This is the subjective element. How stable is your employment? How long have you been at your address? Do your bank statements show responsible financial behaviour?

How to Compare Home Loans

Don’t just compare interest rates — look at the comparison rate, which includes fees and gives you a more accurate picture of the true cost.

Feature	What to Look For
Interest Rate	Lower is better, but check the comparison rate
Comparison Rate	True cost including fees — compare this
Offset Account	Reduces interest by offsetting savings against your loan balance
Redraw Facility	Access extra repayments you’ve made
Extra Repayments	Can you pay more without penalty?
Loan Portability	Can you take the loan to a new property?
Break Costs	What happens if you exit a fixed rate early?

Should You Use a Mortgage Broker?

A mortgage broker compares loans from multiple lenders on your behalf and handles much of the application process for you. They’re paid by the lender, not by you, so there’s no direct cost to use one.

Benefits of using a broker:

Access to dozens of lenders including banks, credit unions and non-bank lenders
Expert guidance on which lenders are likely to approve your specific situation
They know which lenders are currently fast-tracking approvals
Particularly valuable if your situation is complex — self-employed, bad credit, unusual income

When to go direct:

You have a simple application and an existing relationship with your bank
You’ve done thorough research and know exactly which loan you want

At Financeline we work with specialist lending partners who can assess your situation and match you with the right lender. Talk to a lending specialist →

Home Loans for Bad Credit — Your Options

Having defaults, missed payments or a bankruptcy on your file doesn’t automatically rule out homeownership. Australia has a growing non-conforming lending sector specifically for borrowers in this situation.

What to expect with bad credit home loans:

Higher interest rates (typically 1-4% above standard rates depending on the severity of your credit issues)
Larger deposit requirements (often 20%+)
Fewer lenders to choose from
More documentation required to demonstrate current financial stability

The good news is that once you’ve held a non-conforming loan and demonstrated consistent repayments for 12-24 months, many borrowers successfully refinance to a mainstream lender at standard rates.

Explore bad credit home loan options →

Refinancing Your Home Loan

If you already have a mortgage, refinancing — switching to a different loan or lender — could save you thousands. Australian homeowners who haven’t reviewed their loan in the past 2-3 years are almost certainly paying more than they need to.

Good reasons to refinance:

Your fixed rate period is ending and you’re rolling to a higher variable rate
Your property has increased in value and you now have 20%+ equity, allowing you to drop LMI
Your credit score has improved and you can now access better rates
You want to access equity for renovations or investment
You’ve found a significantly lower rate elsewhere

Watch out for:

Break costs on fixed rate loans (can be substantial)
Application and settlement fees on the new loan
Resetting your loan term (refinancing a 25-year loan back to 30 years costs more over time even if the rate is lower)

Frequently Asked Questions

How long does home loan approval take?
Pre-approval typically takes 1-5 business days. Full approval after finding a property can take 5-15 business days, though some lenders offer faster turnarounds. Non-bank lenders are often faster than major banks.

Can I get a home loan if I’m self-employed?
Yes. You’ll typically need 2 years of tax returns showing consistent income, or a low doc loan if you can’t provide full documentation. Having a good deposit and clean credit history significantly improves your chances.

What’s the difference between pre-approval and full approval?
Pre-approval (also called conditional approval) means a lender has assessed your financial situation and indicated how much they’d lend you. It’s not a guarantee. Full approval comes after you’ve found a specific property and the lender has completed a valuation.

How much deposit do I need?
Technically as little as 5% with the First Home Guarantee, or 10% with most lenders (though you’ll pay LMI under 20%). Most financial advisers recommend saving 20% to avoid LMI and demonstrate financial strength to lenders.

Can I get a home loan on a single income?
Yes, though your borrowing capacity will be lower than a dual-income household. Many Australians buy on a single income — it usually just means buying in a different location or at a lower price point than originally planned.

What happens if I miss a repayment?
Contact your lender immediately. Most lenders have hardship provisions and would rather work with you than go through a default process. Missing payments without communication is when things escalate quickly.

Ready to Explore Your Options?

Whether you’re buying your first home, refinancing an existing loan, or looking for specialist finance despite a difficult credit history — Financeline can help you find the right path forward.

Talk to a Lending Specialist → Check Your Borrowing Capacity → Explore Non-Conforming Loans →

Financeline provides general information only and does not constitute financial advice. Credit products are subject to lender approval and individual circumstances. Always consider your personal situation and consult a licensed mortgage broker or financial adviser before making borrowing decisions.