How to apply for a mortgage: Your essential guide for Melbourne's first-home buyers

Thinking about how to apply for a mortgage in Melbourne? You are not alone – rising property prices and a buzzing housing market mean it is important to understand the process.

For first-home buyers, the process to apply for a mortgage can vary slightly if you are looking to make the most of opportunities like government grants and stamp duty concessions.

Your Loan Market broker can make the journey easier by offering tailored advice and helping you find the right loan for your homeownership and financial needs. With Melbourne's property market becoming increasingly competitive, being prepared is key.

Let's explore what you need to know to navigate the mortgage process with confidence.

What is a mortgage?

A mortgage is a loan from a financial institution to help you buy a home. In this agreement, the lender covers a portion of the purchase price, and you pay back the loan in regular installments over a set period, usually 25 to 30 years. The property itself acts as security, which means the lender has the right to take ownership if repayments are not made.

In Melbourne, where property prices can be a significant financial commitment, you have a variety of home loan options to choose from to suit your needs. Common types include:

• Fixed-rate loans: The interest rate stays the same for a set period, offering predictable repayments.
• Variable-rate loans: The interest rate changes with the market, potentially lowering costs if rates drop, or increasing repayments if they go up.
• Construction loans: These are designed for people building a home, with funds released in stages as the project progresses.

Mortgages are a vital tool in the property market, especially for Melbourne buyers looking to get onto the property ladder. Choosing the right loan type can really impact your financial outcomes.

How does a mortgage work?

When you take out a mortgage, your repayment amount is calculated based on the loan amount, interest rate and the loan term. You will typically repay both the principal (the amount you borrowed) and the interest (the cost of borrowing) in regular loan repayments. Lenders also look at what you can afford to borrow by considering things like your income, expenses and credit history.

To understand it better, let's look at an example:

Imagine you are buying a home in Melbourne for $700,000 with a 20% deposit of $140,000, leaving a loan amount of $560,000.

• Loan term: 30 years
• Interest rate: 6% p.a. (variable rate)
• Monthly repayments: Approximately $3,358

Here is how it breaks down:

• Deposit: $140,000 upfront (20% of the purchase price)
• Lenders mortgage insurance (LMI): None, since the deposit is over 20%.
• Total loan balance: $560,000
• Total interest over 30 years: Around $646,000 (if rates remain steady)
• Total cost of the property: Approximately $1.3 million (loan + deposit + interest).

By understanding how a mortgage works, you will be better prepared to plan your finances and choose a loan that feels right for you.

Eligibility requirements for a mortgage

Before applying for a mortgage in Melbourne, it is important to make sure you meet the lending criteria. Lenders carefully assess your financial situation to work out what you can borrow. Here's what you need to know:

• Income and employment: A stable income is key. Most lenders like to see at least six months of continuous employment, or two years of financial records if you are self-employed. Couples applying together can often combine their incomes.
• Credit score: A good credit score (usually 620 or higher) improves your chances of approval. Scores above 750 often help you qualify for better interest rates.
• Deposit: A minimum deposit of 5% of the purchase price is typically needed, but a 20% deposit helps you avoid lenders mortgage insurance (LMI). For a $600,000 home, this means saving at least $30,000 for 5% or $120,000 for 20%.
• Other financials: Lenders might ask for bank statements, details of existing debts like credit cards and proof of savings.

Meeting these requirements is a crucial step toward homeownership. If you are unsure about your financial readiness, chat with a Loan Market Connect broker for tailored advice.

Step-by-step guide to applying for a mortgage

Applying for a mortgage in Melbourne can be straightforward if you follow the right steps. Here is a simple guide of what your broker can help you with, from planning your finances to getting your loan finalised.

1. Assess your financial situation: Look at your income, expenses and savings to understand how much you can comfortably afford for loan repayments. You can use a borrowing capacity calculator to estimate what you might be able to borrow.
2. Research lenders and loan options: Compare banks and lenders to find competitive interest rates and loan features. Consider options like fixed-rate, variable-rate or loans with offset accounts that suit your financial needs.
3. Get pre approval: Pre approval gives you a clear idea of your maximum purchase price and shows sellers you are serious about buying. It is usually valid for three to six months and involves a basic assessment of your financial situation by the lender.
4. Gather your documents: Prepare essential paperwork like bank statements, payslips, tax returns and proof of ID. Lenders will also review your credit score and any existing debts, like credit cards or personal loans.
5. Finalise your mortgage application: Once you have chosen a property, complete your loan application with the lender. They will do final checks, including a building inspection or valuation.

With these steps in mind, you will be well prepared to navigate the loan application process with confidence.

Case study: How Emma bought property in Melbourne

Emma, a 39-year-old teacher, wanted to buy property in Melbourne in 2025. She found a townhouse priced at $700,000 and had saved a 10% deposit of $70,000. With the help of a Loan Market broker, she secured a variable-rate loan for the remaining $630,000.

It wasn’t Emma’s first property, so she didn’t qualify for government schemes. Since her deposit was less than 20%, she had to pay lenders mortgage insurance (LMI), adding approximately $12,600 to her upfront costs. To prepare for her loan application, Emma provided her payslips, bank statements and proof of her credit score of 720, which helped her secure pre-approval quickly.

With her broker's guidance, she chose a loan with an offset account, allowing her to save on interest.

5 expert tips for securing a mortgage

Getting the right mortgage in Melbourne involves more than just comparing rates. Here are five quick tips to help you make smart financial decisions:

• Work with a mortgage broker: Your Loan Market broker can compare a wide range of loan products and help negotiate competitive deals tailored to your personal situation.
• Improve your credit score: Pay off debts, like credit cards, and consider reducing your credit card limit to boost your score before applying. A higher score can help you get better interest rates.
• Save a larger deposit: A 20% deposit helps you avoid lenders mortgage insurance (LMI) and can give you more borrowing power. However, speak with your broker if you have less than a 20% deposit, as it could be possible to enter the market sooner.
• Choose the right loan type: Decide between fixed-rate, variable-rate or a split loan based on your financial goals and how comfortable you are with risk. Think about features like offset accounts for added savings.
• Budget for upfront and hidden costs: Prepare for expenses like stamp duty, conveyancing costs and building inspections. These costs can add up, so include them in your planning.

By following these tips, you will increase your chances of finding a mortgage that works for you in Melbourne's competitive market.

FAQs

• How long does the mortgage application process take? On average, 5 to 10 business days for approval, plus settlement time. However, this varies broadly depending on the lender.
• Can I apply for a mortgage as a self-employed individual? Yes, but you will need extra documents like tax returns and financial records.
• What is the minimum deposit required? A 5% deposit is typical, but 20% helps avoid lenders mortgage insurance (LMI).
• What are the penalties for breaking a mortgage early? Fees depend on your loan type. Fixed loans often have higher penalties.
• Are there grants for first-home buyers? Yes, the First Home Owner Grant and Victorian Homebuyer Fund are available.
• What upfront costs should I expect? Budget for additional costs such as stamp duty, conveyancing costs and building inspections.