How to Buy a Townhouse as a First Home Buyer

Buying a townhouse as a first home buyer gives you a foothold in the property market without the price tag of a detached house.

The deposit requirement is usually the first hurdle. Most lenders want 20% to avoid Lenders Mortgage Insurance (LMI), but several schemes let you buy with 5% or 10%, and some professions, including principals, can access reduced LMI or waive it altogether under certain lender policies. Stamp duty concessions in most states also reduce upfront costs, and in some cases remove them entirely if the property sits under the relevant threshold. The combination of a lower deposit and reduced stamp duty means you can move sooner, but you need to know which schemes apply to your situation and which lenders offer the terms that suit your budget.

What Deposit Do You Need for a Townhouse?

You can purchase a townhouse with as little as 5% under the Australian Government 5% Deposit Scheme, which covers the gap between your deposit and 20% so you avoid paying LMI. Most lenders require a 20% deposit to waive LMI entirely, but some offer reduced LMI rates or waive it for specific professions. Principals working in government or non-government schools often qualify for these policies, which can save several thousand dollars in upfront costs.

Consider a principal purchasing a townhouse at the median price in their suburb with a 10% deposit. Under the 5% Deposit Scheme, they would avoid LMI altogether. Without the scheme, LMI on a 10% deposit could add around $10,000 to $15,000 to the purchase, depending on the lender and location. The scheme is available through 31 participating lenders as of this year, including three major banks and 28 others, so you have options beyond the big four.

Some first home buyers use a gift from family to reach 5% or 10%. Most lenders accept gifted deposits provided the gift is declared and a signed statutory declaration confirms the funds are not a loan. Genuine savings requirements vary by lender, but typically you need to show at least 5% saved over three months in your own account, separate from the gift.

Stamp Duty Concessions for First Home Buyers

Stamp duty concessions reduce or eliminate transfer duty for first home buyers, and the thresholds vary by state. In New South Wales, you pay no stamp duty on a townhouse valued up to $800,000, with a sliding concession up to $1,000,000. In Victoria, the nil duty threshold is $600,000, with a concession up to $750,000. Queensland offers no transfer duty on established homes up to $700,000 and a full concession on new builds with no price cap from May this year. South Australia introduced a full transfer duty concession on new homes and vacant land with no price cap from May, while established homes under $700,000 attract no duty.

These concessions apply only if you intend to occupy the property as your principal place of residence. Investment purchases do not qualify. In most states, you can combine the stamp duty concession with the 5% Deposit Scheme, which compounds the upfront saving. A principal purchasing a $750,000 townhouse in Victoria would save around $40,000 in stamp duty and avoid LMI if using the 5% Deposit Scheme with a 5% deposit. That brings the upfront cost down from close to $200,000 to around $37,500 plus settlement costs, which usually sit between $3,000 and $5,000.

First Home Owner Grants and How They Work

First home owner grants are cash payments that go toward your deposit or settlement costs, but they apply only to new or substantially renovated homes in most states. New South Wales offers $10,000 for new builds valued up to $600,000, or up to $750,000 for combined land and build contracts. Victoria also offers $10,000 for new homes under $750,000. Queensland provides $30,000 for new homes under $750,000, but this grant applies only to contracts signed before 30 June this year. South Australia offers $15,000 with no price cap, and Tasmania offers $30,000 for contracts entered into before 30 June this year, dropping to a proposed $20,000 from July.

If you are purchasing an established townhouse, you will not receive a first home owner grant in most states. The exception is the Northern Territory, which previously offered a $10,000 grant for established homes, but that grant ended in September last year. The grants are paid at or shortly after settlement, depending on the state, so you need to fund your deposit from savings, a gift, or a combination of both before the grant is paid.

Using the First Home Super Saver Scheme

The First Home Super Saver Scheme lets you make voluntary super contributions and withdraw up to $50,000 to put toward your deposit. Personal contributions are taxed at 15% instead of your marginal rate, so if you are on a higher income bracket as a principal, the tax saving is significant. You can contribute up to $15,000 in any one financial year and withdraw the total once you apply for a determination from the Australian Taxation Office.

In our experience, buyers who plan ahead and salary sacrifice into super for two or three years before purchasing can build a deposit faster than saving in a standard bank account. You need to apply for the determination before signing a contract, and you must purchase within 12 months of receiving it, or you can apply for a 12-month extension. The withdrawn amount is taxed again at your marginal rate minus a 30% offset, so the net benefit depends on your income, but most buyers still come out ahead compared to saving after-tax dollars.

Help to Buy and Shared Equity Programs

Help to Buy launched in December last year and allows the Australian Government to contribute up to 30% of the purchase price for an established home or 40% for a new home. You need a minimum 2% deposit, and the government holds an equity share proportional to its contribution. Income limits are $100,000 for individuals and $160,000 for joint applicants or single parents. Property price caps apply and vary by location, so you need to check whether the townhouse you are considering falls within the cap for your area.

You cannot combine Help to Buy with the 5% Deposit Scheme, but you can use it alongside state stamp duty concessions and grants where eligible. When you sell or refinance, you repay the government's share based on the property value at that time, so if the townhouse increases in value, the government's share also increases. Some buyers prefer to avoid shared equity for that reason, while others see it as a way to enter the market sooner with a smaller deposit. The decision depends on your financial position and how long you plan to hold the property.

What Lenders Look for in a First Home Loan Application

Lenders assess your income, expenses, existing debts, and credit history when you apply for a home loan. Principals on a permanent salary usually meet serviceability requirements without issue, provided you do not carry high personal debt. Lenders calculate your borrowing capacity using your net income after tax, superannuation, and mandatory deductions, then subtract your monthly expenses and any loan repayments on credit cards, car loans, or other debts.

Most lenders add a buffer of around 3% to the current interest rate when assessing serviceability, so even if the variable rate is lower, they test whether you can afford repayments at a higher rate. If you have a credit card with a $10,000 limit, the lender assumes you are using the full limit and calculates a minimum monthly repayment, even if you pay it off in full each month. Closing or reducing credit limits before applying can increase your borrowing capacity by several thousand dollars.

You will need to provide payslips, tax returns if you have secondary income, bank statements showing genuine savings, and identification. Some lenders accept rental payment history as evidence of savings capacity, which can help if you have been renting and paying more than a comparable mortgage repayment. Getting pre-approval before you make an offer gives you certainty on your budget and strengthens your position when negotiating, particularly in markets where townhouses attract multiple offers.

Fixed or Variable Interest Rates for Your First Home Loan

You can choose a fixed rate, a variable rate, or split your loan between the two. Fixed rates lock in your repayment for one to five years, so you know exactly what you will pay regardless of rate movements. Variable rates move up or down with the market, and they usually come with features like an offset account or redraw facility that let you reduce interest by parking savings against the loan balance.

Principals with stable incomes often split their loan, fixing a portion to manage repayment certainty and leaving the rest variable to retain flexibility. If you fix the entire loan and rates drop, you are locked in at the higher rate unless you pay break costs, which can run into thousands of dollars depending on how much rates have moved. If you go fully variable and rates rise sharply, your repayments increase, which can strain your budget if you are already at the edge of your borrowing capacity.

Splitting the loan at 50/50 or 60/40 gives you some protection against rate rises while keeping access to features that help you pay down the loan faster. At current variable rates, even small additional repayments or regular deposits into an offset account can reduce the interest you pay over the life of the loan, but you lose that flexibility on the fixed portion. The decision depends on your risk tolerance and how much you value certainty over flexibility.

Strata Fees and What They Mean for Your Budget

Townhouses in a strata complex come with quarterly or annual strata fees that cover shared costs like building insurance, common area maintenance, and contributions to a sinking fund for major repairs. Fees vary depending on the size of the complex and what is included, but expect to pay between $1,000 and $3,000 per year for a standard townhouse. Lenders factor strata fees into your serviceability assessment, so higher fees reduce your borrowing capacity.

Before making an offer, request a strata report or review the strata records if the property is in New South Wales, Victoria, or Queensland. The report shows the current levy, the balance of the sinking fund, any planned major works, and whether the owners corporation has disputes or debt. A complex with a low sinking fund balance and planned roof repairs may levy a special contribution within the next 12 months, which you need to budget for. In our experience, first home buyers often overlook strata fees and focus only on the mortgage repayment, then find the total monthly cost is higher than expected once fees and insurance are included.

When to Make an Offer on a Townhouse

Make an offer once you have pre-approval, a clear budget, and a sense of recent sale prices for comparable townhouses in the area. Pre-approval tells you what you can borrow, but your actual budget should also factor in stamp duty, legal fees, building and pest inspections, and any immediate repairs or improvements. A townhouse selling at the upper end of your pre-approved amount may leave you without the cash needed for settlement or moving costs.

If the townhouse is in a strata complex, inspect the common areas and ask whether any major works are planned. If it is a standalone strata title or a small complex, check whether you are responsible for repairs to external walls, the roof, or shared driveways, as these responsibilities vary by state and the strata plan. Making an offer subject to finance, building inspection, and strata report review is standard practice and protects you if something unexpected arises during due diligence.

Call one of our team or book an appointment at a time that works for you. We can confirm your borrowing capacity, identify which schemes apply to your situation, and arrange pre-approval before you start making offers.

Frequently Asked Questions