Budgeting guide for first home buyers
By Ali Hasani, Founder and Principal Mortgage Broker at Buyvest, MFAA accredited. Last updated July 2026. Lender assessment models and policies vary and change.
It also explains the gap most buyers hit: the number an online calculator gives you and the number a lender approves are rarely the same, and the reasons for that are specific and worth understanding.
The short version: Work out your net income, map your real expenses, and subtract existing commitments. Then understand that lenders assess you at your rate plus a buffer of at least 3 percentage points, measure your expenses against a benchmark rather than taking your word for it, and count credit card limits as debt whether you use them or not. Those three things explain almost every gap between what you expected and what you were offered.
How do you work out what you can afford?
Start with net monthly income, subtract every regular expense and existing loan repayment, and what remains is what you have to service a mortgage. That figure, not the property price, is where a realistic budget begins.
Your income
Add up all sources: salary after tax, self employed income, and any reliable investment or rental income. Lenders verify this with recent payslips, two years of tax returns and bank statements. If you are self employed or your income varies, expect assessment on two years of returns to establish an average.
Your expenses
List everything: rent, utilities, insurance, groceries, transport, health cover, childcare, subscriptions. Then add the ones that do not arrive monthly, like annual insurance, car servicing and travel, averaged across the year. Most people underestimate here by a considerable margin, which is precisely why lenders do not simply take the number you write down.
What is left
Net income minus living expenses minus existing loan repayments is your surplus. That is the figure a lender works from, and it is also the honest test of whether a purchase is sustainable rather than merely approvable.
How do Australian lenders actually assess you?
Three things explain most of the gap between what you think you can borrow and what you are offered: the serviceability buffer, the expense benchmark, and how credit limits are counted.
The serviceability buffer
APRA requires lenders to assess you at your actual loan rate plus a buffer of at least 3 percentage points. So a loan priced at 6% is tested at around 9%. You are assessed on whether you could afford the stressed rate, not the one you will pay.
This single rule is the biggest reason borrowing power feels tighter than your income suggests, and it applies to every APRA-regulated lender. It also means every rate rise is magnified, because the buffer rides on top of your real rate.
Non-bank lenders are not bound by the same rule. They are regulated by ASIC rather than APRA, and some apply a lower buffer, which can materially change the amount they will approve on an identical application. Rates and fees may differ, so it is a trade rather than a free win, but it is a genuine option worth knowing about if a bank has said no.
The expense benchmark
Lenders do not simply accept your declared living expenses. They compare them against the Household Expenditure Measure, a benchmark of what a household of your size, location and income typically spends, and assess you on whichever figure is higher.
The practical consequence is that declaring unrealistically low expenses achieves nothing. If you say you live on $1,200 a month and the benchmark says $3,400, you are assessed at $3,400. What does help is genuinely reducing recurring commitments, because that shows up in your statements and in the categories the benchmark does not override.
Credit limits, not balances
A credit card with a $10,000 limit and nothing owing is still treated as a $10,000 debt, because you could draw it tomorrow. Lenders apply a minimum repayment against the limit and deduct it from your surplus. Buy now pay later accounts are treated the same way.
Closing unused cards and reducing limits before you apply is one of the fastest ways to increase what you can borrow, and it costs nothing but paperwork.
Everything else
Beyond those three, lenders weigh your credit history, employment stability and type, number of dependants, existing debts including any HECS or HELP obligation, the property type, and your Loan to Value Ratio, which affects both your rate and whether LMI applies.
Credit policies differ considerably between lenders on all of these, which is why the same application can produce quite different answers. Our mortgage repayment calculator models the repayment side, and pre-approval gives you the real number.
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What should you budget for upfront?
Allow 3% to 5% of the purchase price on top of your deposit. For an eligible first home buyer under $800,000, stamp duty is $0, which removes the largest line entirely.
Stamp duty is usually the biggest upfront cost, and the NSW exemption removes it on a home up to $800,000, with a reduced rate to $1,000,000. Conveyancing and legal work runs roughly $1,500 to $3,000. Building and pest inspections cost $400 to $800, and a strata report is essential if you are buying into a strata scheme. Add lender and government fees at settlement, insurance from the day of exchange, and moving costs.
LMI belongs here too if you are borrowing above 80% without a scheme or waiver. The 5% Deposit Scheme removes it, and the First Home Owner Grant adds $10,000 on an eligible new home. Our property deposit calculator shows what your deposit supports once these are accounted for.
What are the ongoing costs?
Budget roughly 1% to 2% of the property's value each year beyond your mortgage. Most first home buyers underestimate this, and it is what turns an affordable purchase into a stressful one.
Council rates typically run $1,500 to $3,000 a year depending on value and location. Water rates add several hundred plus usage. Strata levies range from around $1,000 to $5,000 or more annually, higher again in buildings with pools, lifts and concierge. Home and contents insurance is typically $1,000 to $3,000. Then maintenance, which for a freestanding house is the one people forget until the hot water system goes.
Run these through your surplus before you commit. A repayment that works on paper and leaves nothing for a rates notice is not a budget, it is a hope.
How do you increase your borrowing capacity?
Reduce commitments, increase or stabilise income, or change lender. The first is fastest, the second takes months, and the third is often the largest single change.
Clear and close credit facilities. Pay down credit cards and personal loans, then close the accounts or cut the limits. Because limits count in full regardless of balance, this often adds more capacity than the debt itself was costing you.
Stabilise your employment. Lenders want consistency. If a job change is coming, it is usually better to apply before or well after, not during probation.
Build a larger deposit. A bigger deposit reduces the loan and may move you into a better LVR band. The First Home Super Saver scheme builds it inside super at a lower tax rate, and a release generally counts as genuine savings.
Change the structure. A guarantor loan, a government scheme, or a professional LMI waiver can each change what is achievable without changing your income at all. Our pathways guide covers which suits which situation.
Change the target. Sometimes the answer is a different suburb or property type rather than a bigger loan. Our guides on how to buy the right property and location, condition and vibes work through that.
Frequently asked questions
How do lenders calculate borrowing capacity?
They take your verified income, subtract your assessed living expenses and existing commitments, then test whether the surplus covers repayments at your rate plus a buffer of at least 3 percentage points. Credit history, employment stability, dependants, property type and LVR all feed in. Policies differ between lenders, so the same application can produce quite different answers.
What is the serviceability buffer?
An additional interest rate lenders must add when assessing you. APRA requires at least 3 percentage points, so a loan priced at 6% is assessed near 9%. It exists so borrowers can absorb rate rises. Non-bank lenders are regulated by ASIC rather than APRA and some apply a lower buffer, which can change the amount approved on an identical application.
What is HEM and why does it matter?
The Household Expenditure Measure is a benchmark of what a household of your size, location and income typically spends. Lenders compare it against your declared living expenses and assess you on whichever is higher. That is why understating your expenses does not increase your borrowing capacity, and why genuinely reducing recurring commitments does.
Do credit cards affect my borrowing capacity if I pay them off?
Yes. Lenders assess the limit, not the balance, because you could draw it at any time. A $10,000 limit with nothing owing still reduces your capacity. Closing unused cards or reducing limits before you apply is one of the quickest ways to improve your position.
Does HECS or HELP debt affect my borrowing capacity?
Usually yes, because your compulsory repayment is treated as a committed expense. It does not appear on your credit report, but it reduces the income available to service a loan. Treatment now varies between lenders, and some will disregard the debt where it is close to being repaid, so it is worth checking which lenders take the most favourable approach to your balance.
How much of my income should go to repayments?
A common benchmark is that housing costs above 30% of gross income indicate mortgage stress, though what is sustainable depends on your other commitments. Worth testing separately: what repayment could you carry for a year if one income stopped. That figure is usually a better guide than any percentage.
Should I include my partner's income?
Combining incomes increases capacity, but both of you become fully responsible for the loan, both credit histories are assessed, and either person's employment change affects serviceability. Worth discussing openly, including what happens if one income reduces later.
How does my credit score affect things?
It affects approval, your rate, and sometimes the deposit required. Check your credit report before applying and correct any errors. Paying bills on time, reducing card limits and avoiding multiple loan applications in a short period all help.
What if I cannot afford the property I want?
Reduce commitments and reapply, look at a guarantor loan or a government scheme, check whether your occupation qualifies for an LMI waiver, or adjust the target. A different lender is also worth trying, because credit policies vary considerably and a decline from one is not a decline from all.
Next steps
Model your position with our mortgage repayment calculator, property deposit calculator and home equity calculator. Then get pre-approved, because that is the only number that counts, and read the pathways guide to see which schemes apply to you.
Learn more about our team, or see our service areas across 220+ Sydney suburbs.
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Related resources
Pre-approval | Pathways to home ownership | Deposit options | Genuine savings | Loan to Value Ratio | LMI explained | Choosing the right finance
Service areas: 220+ suburbs across Sydney including Ryde | Parramatta | Baulkham Hills | Gladesville | Penrith | Chatswood | Castle Hill | Epping | Hornsby | Blacktown | Bankstown | Hurstville | Sutherland | Manly | Bondi | Sydney CBD and more
This article is general information only and does not take your personal circumstances into account. Lender assessment models, buffers, expense benchmarks and credit policies vary between lenders and change over time. Confirm your position with a licensed broker or lender before relying on it. For tax questions, speak with your accountant. Ali Hasani is an Authorised Credit Representative (CRN 567392) of Connective Credit Services Pty Ltd (Australian Credit Licence 389328).
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Important stuff:
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