Can you afford a $600,000 home? Here’s how much you’ll need to get started

If you’re a home buyer in an Australian capital city, odds are finding anything below $600,000 is a minor miracle. But miracles happen every day, and Australia's average mortgage size is only $593,000. For the savvy borrower, this is quite achievable. 

So let’s look into how much money you realistically need to buy a $600,000 home in Australia, including the main home loan costs to consider.  

How much do you need to buy a $600,000 home loan?

Whenever you take out a home loan, you will be asked to contribute an upfront deposit (typically 20% of the property purchase price) and cover any fees and government charges, like:

• Loan application and settlement fees. 
• Mortgage broker fees.
• Conveyancing fees.
• Property valuation fees.

Depending on the loan or lender, these fees can run into the hundreds. You may also have to pay stamp duty, but if you’re a first home buyer, you might be eligible to have this tax waived depending on where you live. 

What home loan costs you can afford upfront will depend on your financial situation and any government or financial support you receive. Loan costs and borrowing power vary by home loan lender, too, so one offer may require more money from you than another. 

This is why comparing home loans is vital before jumping into the housing market. 

How much deposit do you need to buy a $600,000 home?

If you’re buying a $600,000 home, a 20% deposit is $120,000. This would establish your 80% loan-to-value ratio (LVR) and make you eligible for competitive interest rates. 

You could buy with a smaller deposit, but you may also have to pay Lenders Mortgage Insurance (LMI), a fee that can add thousands of dollars to your mortgage repayments. Your interest rate will likely be higher, too, since high LVRs cop high interest rates. 

If you buy with a 10% deposit, you will need at least $60,000. Some lenders let you buy with as little as 5%, which would mean you only need $30,000. But you will likely have to pay LMI for both these deposit amounts. 

If you want to buy with a smaller deposit but avoid LMI and high interest rates, you could consider the following:

• Buying with a guarantor. 
• Using a cash gift as part or all of the deposit.
• Applying for first home owner grants, if eligible.

These can all lower the upfront costs of a home loan in Australia.

How much income do you need to buy a $600,000 home?

Let’s consider an average scenario in Australia to establish a timeline, salary, and the amount of genuine savings it takes to buy a $600,000 home. 

If you buy a $600,000 home with a 20% down payment, your home loan value will be $480,000. Let’s say you’re an owner-occupier making principal and interest payments with a loan term of 25 years, at the current Mozo database average interest rate of 6.60%. 

According to the Mozo mortgage repayment calculator, you would be repaying $3,271 monthly. In Australia, you are under so-called ‘mortgage stress’ if you spend more than 30% of your monthly income on repayments. In order to meet this threshold, your after-tax income should be at least $10,903 monthly ($130,840 yearly). Before tax, your yearly salary will need to be at least $189,000. 

Say this is doable for high-income earners or a couple on a dual income. How long would it take to save for the 20% deposit? (Not including stamp duty). 

• If you save $2000 a month, you will have your $120,000 deposit in 5 years. 
• If you save $4000 a month, you will have your $120,000 deposit in 2.5 years. 
• If you save $5000 a month, you will have your $120,000 deposit in 2 years.
• If you save $10,000 a month, you will have your $120,000 deposit in just one year.

Storing your savings in a high interest savings account could help you grow your nest egg faster, especially if you have a good interest rate. Keep in mind that interest earned in a savings account counts as taxable income. 

Check out Mozo’s budget calculator to see how much you can save a month.

Try Mozo’s borrowing power calculator to see how large a home loan you can afford. Ready to compare? Browse home loan options in the table below.