How to Apply for a Mortgage: Essential Guide for Melbourne’s First Homebuyers

Thinking about how to apply for a mortgage in Melbourne in 2025? You’re not alone—rising property prices and a buzzing housing market mean it’s more important than ever to understand the process. 

For first-home buyers, knowing how to apply for a mortgage is crucial to take advantage of opportunities like government grants and stamp duty concessions. 

Mortgage brokers 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 everything you need to know to navigate the mortgage process confidently.

What Is a Mortgage?

A mortgage is a loan provided by a financial institution to help you purchase a residential property. In this agreement, the lender covers most of the purchase price, and you repay the loan in monthly instalments over a set loan term, typically 25–30 years. 

The property serves as collateral, which means the lender has the right to take ownership if repayments are not made.

In Melbourne, where property prices can be a substantial financial commitment, buyers can choose from a variety of home loan options to suit their needs. Common types include:

• Fixed-Rate Loans: The interest rate remains constant for a set period, offering predictable repayments.

• Variable-Rate Loans: The interest rate fluctuates with the market, potentially lowering costs if rates drop.

• Offset Accounts: A portion of your savings is used to reduce the loan balance, which can lower interest charges.

• Construction Loans: Designed for buyers building a home, with funds released in stages as the project progresses.

Mortgages are a vital tool in the property markets, especially for Melbourne buyers aiming to enter the property ladder. Choosing the right loan type can significantly impact your financial outcomes.

How Does a Mortgage Work?

When you take out a mortgage, the repayment amount is calculated based on the loan amount, interest rate, and loan term. You’ll typically repay both the principal (the amount borrowed) and interest (the cost of borrowing) in regular loan repayments. 

Lenders also assess your borrowing capacity by looking at factors like income, expenses, and credit history to determine how much they’ll lend you.

To better understand, let’s look at a sample scenario:

Imagine you’re purchasing 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% (variable rate)
• Monthly Repayments: Approximately $3,358

Here’s 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 the mechanics of a mortgage, you’ll be better prepared to plan your finances and choose the right loan. 

Projected 2025 Mortgage Property Trends in Melbourne

In 2024, Melbourne’s property market remained resilient despite higher loan interest rates. The median house price sits at $915,000, while unit prices average $593,000 (CoreLogic). Demand remains strong due to population growth and limited housing supply, keeping Melbourne a sought-after location for both buyers and investors.

Interest rates have averaged 6.0%–6.5% for variable-rate loans in late 2024, with fixed rates slightly lower at 5.5%–6.0%. The Reserve Bank of Australia (RBA) has indicated that rates may stabilise in early 2025, giving buyers some breathing room. 

For first-home buyers, Melbourne is especially attractive due to generous stamp duty concessions and initiatives like the Victorian Homebuyer Fund, which helps buyers with smaller deposits enter the market. The First Home Owner Grant (FHOG) of $10,000 for properties under $750,000 also makes Melbourne a viable option for those entering the property ladder.

In 2025, property prices are projected to rise modestly by 3–5% as demand continues to outpace supply. First-home buyers should act quickly to take advantage of government incentives and stabilising interest rates before prices climb further.

Eligibility Requirements for a Mortgage

Before applying for a mortgage in Melbourne, it’s crucial to ensure you meet the lending criteria. Lenders assess your financial situation carefully to determine your borrowing capacity. Here’s what you need to know:

• Income and Employment: A stable income is key. Most lenders require at least six months of continuous employment or two years’ financial records if you’re self-employed. Couples applying jointly may combine their incomes.

• Credit Score: A good credit score (typically 620 or higher) improves your chances of approval. Scores above 750 often qualify for better interest rates.

• Deposit: A minimum deposit of 5% of the purchase price is required, but a 20% deposit helps 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 may ask for bank statements, existing debts like credit cards, and proof of savings.

Meeting these requirements is a critical step toward homeownership. If you’re unsure about your financial readiness, consider consulting a mortgage 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’s a simple guide to help you through the process, from planning your finances to finalising your loan.

1. Assess Your Financial Situation

Evaluate your income, expenses, and savings to understand how much you can afford for loan repayments. Use a mortgage calculator to estimate your borrowing capacity and determine if you’ll need to pay Lenders Mortgage Insurance (LMI) with a smaller deposit.

2. Research Lenders and Loan Options

Compare banks, credit unions, and mortgage brokers to find the best interest rates and loan features. Look for options like fixed-rate, variable-rate, or loans with offset accounts to suit your financial needs.

3. Get Pre-Approval

Pre-approval gives you a clear idea of your maximum purchase price and shows sellers you’re serious about buying. It’s valid for 3–6 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’ve chosen a property, complete your loan application with the lender. They’ll conduct final checks, including a building inspection or valuation, and you’ll receive formal approval in 5–10 business days.

With these steps in mind, you’ll be well-prepared to navigate the loan application process confidently.

Case Study: How Emma Bought Her First Home in Melbourne

Emma, a 29-year-old teacher, wanted to buy her first home 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 mortgage broker, she secured a variable-rate loan for the remaining $630,000.

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. Within three months, Emma moved into her new home, all while benefiting from the First Home Owner Grant and stamp duty concessions, saving her nearly $15,000. Emma’s careful planning and use of expert advice made the process smooth and successful.

5 Expert Tips for Securing the Best Mortgage in 2025

Getting the best mortgage in Melbourne requires more than just comparing rates. Here are five quick tips to help you make smart financial decisions in 2025:

1. Work with a Mortgage Broker: Mortgage brokers, such as LM Connect, can compare a wide range of loan products and negotiate better deals tailored to your personal situation.
2. Improve Your Credit Score: Pay off debts, like credit cards, and reduce your credit card limit to boost your score before applying. A higher score can unlock better interest rates.
3. Save a Larger Deposit: A 20% deposit helps you avoid Lenders Mortgage Insurance (LMI) and gives you more borrowing power.
4. Choose the Right Loan Type: Decide between fixed-rate, variable-rate, or mixed loans based on your financial goals and risk tolerance. Consider features like offset accounts for added savings.
5. Budget for Upfront and Hidden Costs: Prepare for expenses like stamp duty, application fees, and building inspections. These costs can quickly add up, so include them in your planning.

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

FAQs

What’s the average interest rate for mortgages in 2025?

Rates range between 5.5%-6.5%, depending on the lender and loan type.

How long does the mortgage application process take?

On average, 5-10 business days for approval, plus settlement time.

Can I apply for a mortgage as a self-employed individual?

Yes, but you'll need extra documents like tax returns and financial records.

What’s 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-time buyers?

Yes, the First Home Owner Grant and Victorian Homebuyer Fund are available.

What upfront costs should I expect?

Budget for stamp duty, conveyancing costs, and building inspections.

Wrapping It Up: Your Next Steps Toward Homeownership in Melbourne

Buying your first home in Melbourne in 2025 is an exciting milestone, and being prepared can make all the difference. With the right planning, understanding of the mortgage process, and professional support, you’ll be well on your way to stepping onto the property ladder.

If you’re ready to take the next step or have questions about your options, our team at LM Connect is here to help.

We offer a free consultation to guide you through the process, compare loan products, and find the best solution for your financial situation. Call us today at 0423 713 362 or visit LM Connect to book your free consultation and get started on your journey toward homeownership.