From Renting to Buying: Your Complete Guide to Homeownership in Australia

Dreaming of swapping rent receipts for home ownership? You're not alone. Thousands of Australian renters are making the leap to buying their first home each year, and while the journey might seem daunting, understanding the process can make it significantly more achievable.

The difference between renters who stay renters and those who become homeowners often comes down to having the right information and taking consistent action. Let's break down exactly what it takes to go from renting to buying, including the costs you'll need to prepare for, strategies to accelerate your savings, and the steps that'll get you from browsing property listings to holding your own keys.

Understanding the True Cost of Buying a Home

Before you start planning your housewarming party, it's crucial to understand that buying a home involves more than just the purchase price. Here's what you'll need to budget for:

The Deposit

Most lenders require a deposit of at least 5-20% of the property's purchase price. However, if your deposit is less than 20%, you'll typically need to pay Lenders Mortgage Insurance (LMI), which protects the lender if you default on your loan.

Example: If you're buying a $600,000 property:

A 20% deposit = $120,000
A 10% deposit = $60,000 (plus LMI costs of approximately $15,000-$25,000)
A 5% deposit = $30,000 (plus LMI costs of approximately $25,000-$35,000)

The lower your deposit, the more you'll pay in LMI. It's worth considering whether saving for a larger deposit might save you money in the long run.

Upfront Purchase Costs

Beyond your deposit, you'll need to budget for several additional expenses:

Stamp duty: This government tax varies by state and property value, typically ranging from $10,000 to $40,000+ for a median-priced home
Building and pest inspections: $400-$800
Conveyancing/legal fees: $1,200-$2,500
Loan establishment fees: $0-$1,000
Home insurance: $1,000-$2,000 annually

Real-world scenario

Purchasing that $600,000 property in New South Wales might require:

Deposit (20%): $120,000
Stamp duty: ~$24,000 (first home buyers may be exempt)
Other costs: ~$5,000
Total upfront: ~$149,000

Understanding these costs upfront helps you set a realistic savings target rather than being caught off guard later in the process.

Assessing Your Borrowing Power

Just because you've saved a deposit doesn't mean you can afford any property. Lenders assess your borrowing capacity based on several factors to ensure you can comfortably manage the repayments.

What Lenders Look At

Income: Your gross annual income (including bonuses, overtime, and rental income)
Expenses: Your regular living costs, including rent, bills, groceries, and entertainment
Existing debts: Credit cards, personal loans, HECS/HELP debts, and car loans
Dependents: Number of children or other financial dependents
Employment stability: Permanent employment is viewed more favourably than casual work

The Living Expenses Test

Lenders use the Household Expenditure Measure (HEM) to assess whether you can genuinely afford repayments. They'll compare your actual expenses against benchmark costs for someone in your situation.

Example

Sarah earns $85,000 annually and currently pays $450 per week in rent. She has no other debts. Based on her income and expenses, she might be able to borrow approximately $520,000-$560,000, allowing her to purchase a property up to $640,000-$680,000 with a 20% deposit.

Check your own borrowing capacity using the MoneyTools Borrowing Power Calculator to understand what price range you should be targeting.

Creating Your Savings Strategy

The biggest hurdle for most renters is accumulating the deposit while also paying rent. Here's how to accelerate your savings:

Cut Unnecessary Expenses

Start by tracking your spending for one month to identify where your money is actually going. You might be surprised. Common savings opportunities include:

Reducing subscription services you rarely use
Meal planning to reduce food waste and takeaway spending
Switching to a high-interest savings account
Negotiating better rates on insurance, phone plans, and utilities

Maximise Your Income

Cutting expenses only gets you so far. Consider ways to increase your income:

Request a pay review if you haven't had one recently
Consider taking on a side hustle or freelance work
Sell items you no longer need
Pick up extra shifts or overtime when available

The 50/30/20 Rule

This straightforward budgeting framework allocates:

50% to needs (rent, groceries, utilities, minimum debt repayments)
30% to wants (entertainment, dining out, hobbies)
20% to savings and debt repayment

Example: 50/30/20 Rule in Action

If you earn $75,000 after tax ($1,442 weekly):

Needs: $721/week
Wants: $433/week
Savings: $288/week = $15,000 per year

Consistency matters more than perfection. Even saving a smaller percentage regularly will get you closer to your goal.

First Home Buyer Schemes and Grants

The Australian government offers several schemes to help first home buyers enter the market. These can significantly reduce the amount you need to save.

First Home Guarantee (FHBG)

This scheme allows eligible first home buyers to purchase a property with as little as a 5% deposit without paying LMI. The government guarantees up to 15% of the property value, reducing the lender's risk.

Eligibility criteria:

At least 18 years old
Australian citizen
Haven't previously owned property in Australia
Meet income thresholds ($125,000 for individuals, $200,000 for couples)
Property price within regional caps

This scheme could save you tens of thousands in LMI and help you enter the market years earlier.

First Home Owner Grant (FHOG)

Most states offer a one-off grant (typically $10,000-$15,000) for first home buyers purchasing or building a new home. Eligibility and amounts vary by state, so check your local government's requirements.

State-Based Stamp Duty Concessions

Many states offer stamp duty exemptions or concessions for first home buyers, potentially saving you tens of thousands of dollars. These can make a substantial difference to your upfront costs.

The Step-by-Step Process

Here's how the home buying process typically unfolds:

1Get Your Finances in Order (3-6 Months Before)

Check your credit score and fix any errors
Pay down high-interest debts
Reduce credit card limits (even unused limits affect borrowing capacity)
Maintain stable employment
Start saving aggressively

2Research and Get Pre-Approved (2-3 Months Before)

Research suburbs within your budget
Compare loan products from multiple lenders
Gather required documents (payslips, tax returns, bank statements)
Obtain conditional loan approval
Understand your true borrowing capacity

3House Hunt (1-3 Months)

Attend open inspections
Research comparable sales in your target area
Arrange building and pest inspections for properties you're serious about
Make an offer or bid at auction

4Exchange and Settlement (4-8 Weeks)

Sign the contract of sale
Pay the deposit (usually 10%)
Finalise your home loan
Arrange insurance
Complete final inspection
Settlement day: receive the keys!

Understanding Ongoing Costs

Your expenses don't end once you've bought the property. Budget for ongoing costs:

Mortgage repayments: Your biggest ongoing expense
Council rates: $1,000-$3,000 annually
Strata fees: $2,000-$8,000+ annually for apartments
Maintenance and repairs: Budget 1-2% of property value annually
Home and contents insurance: $1,000-$2,500 annually
Utilities: Often higher than when renting

Example: Ongoing Costs Breakdown

On a $600,000 property with a $480,000 mortgage at 6.5% interest over 30 years:

Monthly repayment: ~$3,033
Council rates: ~$150/month
Insurance: ~$150/month
Maintenance buffer: ~$500/month
Total: ~$3,833/month or $885/week

Compare this to your current rent to ensure homeownership is financially sustainable for you.

Calculate Your Mortgage Repayments →

When Renting Might Be Better (For Now)

Homeownership isn't always the right choice for everyone at every stage of life. Consider continuing to rent if:

You're planning to relocate in the next 2-3 years
Your job security is uncertain
Property prices in your desired area are significantly above your borrowing capacity
You haven't built an emergency fund (aim for 3-6 months of expenses)
Interest rates are climbing and may impact your ability to meet repayments

There's no shame in waiting until your circumstances are more suitable for homeownership.

Making the Transition: A 12-Month Timeline

Months 1-3: Foundation Building

Calculate your target savings amount
Set up a dedicated high-interest savings account
Review and optimise your budget
Start tracking your spending habits

Months 4-6: Aggressive Saving

Implement spending cuts
Increase income where possible
Research suburbs and property types within your budget
Begin improving your credit score

Months 7-9: Preparation Phase

Obtain pre-approval from multiple lenders
Finalise your target suburbs
Attend open inspections to understand the market
Research first home buyer grants you're eligible for

Months 10-12: Active Searching

Actively search for properties
Make offers or attend auctions
Complete purchase process
Move into your new home!

Your Next Steps

Transitioning from renting to buying is one of the most significant financial decisions you'll make, but with proper planning and realistic expectations, it's entirely achievable.

Start by understanding exactly where you stand financially. Use the suite of calculators available at MoneyTools.com.au to:

Understand your borrowing capacity
Estimate your future mortgage repayments
Compare different loan scenarios

Ready to Start Your Home Buying Journey?

Use our free calculators to understand your borrowing capacity and estimate your future mortgage repayments.

Check Your Borrowing Power →Calculate Repayments →

The journey from renting to owning might take months or even years, but every dollar saved and every smart financial decision brings you one step closer to holding the keys to your own home.

Remember: the property market will always have ups and downs, but the best time to start preparing for homeownership is now. Take that first step today, and before you know it, you'll be planning that housewarming party after all.

Disclaimer: This article provides general information only and doesn't take into account your specific circumstances. Consider seeking professional financial advice before making property purchasing decisions.