How Much Can You Really Afford for Your First Home?

One of the first numbers many first home buyers want to know is: how much can I borrow?

It is an important question. Knowing your borrowing position can help turn a broad property search into something more realistic. But there is another number that deserves just as much attention: how much do you actually want to spend?

Those two numbers are not always the same. A lender’s borrowing assessment is designed to determine whether a loan meets its credit criteria. Your own budget has a different job - it needs to leave enough room for your repayments, everyday expenses, future plans and the unexpected costs that come with owning a home.

Borrowing capacity is a lender’s assessment, not a spending target

When a lender assesses how much you may be able to borrow, it looks at information such as your income, existing debts, credit limits, living expenses, dependants and the proposed loan. Different lenders can reach different outcomes because their policies, assessment methods and treatment of income or expenses are not identical.

For banks regulated by APRA, home loan serviceability is also generally assessed using an interest-rate buffer. APRA confirmed in May 2026 that the mortgage serviceability buffer remains at 3 percentage points. In simple terms, lenders assess whether a borrower could still manage the loan if the rate used for assessment were meaningfully higher than the actual loan rate.

That is an important safeguard, but it still does not mean the maximum amount a lender is prepared to approve should automatically become your property budget.

Your comfortable budget starts with the life around the mortgage

A mortgage sits alongside everything else you want your income to do. Groceries, utilities, transport, childcare, travel, savings, insurance and the ordinary costs of life do not disappear after settlement. Home ownership also introduces expenses that renters may not have been paying directly, including council rates, maintenance and, for some properties, owners corporation fees.

This is why a useful budget often begins with the repayment you would feel comfortable carrying each month, rather than the maximum purchase price a lender might support. Working backwards from a repayment range can make the property search feel more grounded and can reduce the temptation to stretch simply because a higher approval amount is available.

Interest rates can change the picture quickly

As at 3 September 2026, the RBA cash rate target is 4.35%. The RBA has raised the cash rate three times in 2026, and financial conditions have tightened as those increases flowed through to borrowing costs.

For a first home buyer, this is a reminder that a home loan is not a one-day decision. Unless you remain on a fixed rate for the entire life of the loan - which is not how most Australian mortgages work - your repayments may change over time. Even if the current repayment is comfortable, it is worth asking how the budget would feel if rates were somewhat higher, or if household income temporarily fell.

The goal is not to predict the next RBA decision. It is to choose a price range that still gives you some room when life does not follow the most optimistic scenario.

A larger deposit does not automatically mean you should buy at a higher price

Saving a strong deposit is an achievement, but it does not have to be used to maximise the purchase price. A larger contribution may instead give you flexibility around the loan amount, repayments, lender options or the cash you retain after settlement.

Moneysmart recommends budgeting not only for the deposit but also for buying costs. Depending on your circumstances, those costs can include conveyancing, inspections, lender or valuation costs, moving expenses and government charges. First home buyer grants, guarantees and duty concessions may reduce some upfront costs for eligible buyers, but they should be treated as part of the overall plan rather than a reason to push the property price higher.

If you have not already mapped out the upfront costs, link here to Nestia’s guide Buying Your First Home: The Costs Beyond the Deposit.

Credit cards and other debts can affect more than your monthly cash flow

Existing debts can influence borrowing capacity even when the repayments feel manageable. Credit card limits, personal loans, car finance, buy-now-pay-later commitments and HECS-HELP or other obligations may all be considered differently depending on the lender and the application.

That does not mean every debt needs to be cleared before you can buy. It means it is useful to understand how each commitment affects both sides of the equation: what the lender may be prepared to offer and what you personally feel comfortable repaying.

Reviewing these commitments before seeking pre-approval can also help you avoid making unnecessary changes after you have started looking seriously at properties.

Pre-approval can define the outer boundary - but you can choose to stay inside it

A home loan pre-approval can give you a clearer idea of how a lender may view your borrowing position before you make an offer. But it is usually conditional, time-limited and not the same as final approval.

More importantly, a pre-approved amount is not an instruction to spend to that limit. If a lender indicates that you may be able to borrow a certain amount, you can still choose a lower target based on your preferred repayments, lifestyle and plans.

For a fuller explanation of what pre-approval does and does not mean, you can access a range of articles in Nestia’s Home Loan Pre-Approval guide.

Think about what happens after you get the keys

First home buyers understandably spend a lot of energy getting to settlement. But the better budget is usually the one that also considers the first year after settlement.

You may want to furnish the home, fix things the inspection did not reveal, build an emergency buffer, travel, change jobs or simply continue saving. Some buyers may be comfortable directing a very large share of their income to their mortgage. Others value having more flexibility. Neither approach is automatically right or wrong.

What matters is making the choice deliberately rather than discovering after settlement that the loan has left less room than expected.

Your first-home budget can be a range, not one exact number

Instead of treating affordability as one figure, it can help to think in ranges. You might have a comfortable purchase range, an upper range that still works but requires more compromise, and a level you do not want to exceed even if a lender would approve it.

That approach can make inspections and negotiations easier because the boundary has been considered before the pressure of an auction or offer. It can also help you compare properties based on the whole financial picture rather than asking only whether you technically can buy them.

The right number should work for the lender and for you

A good first home buying plan brings two assessments together. The lender needs to be satisfied that the loan meets its credit criteria. You need to be satisfied that the repayments and upfront costs fit the way you actually want to live.

Sometimes those numbers will be very close. Sometimes your comfortable budget will sit well below your maximum borrowing capacity. Either outcome can be completely reasonable.

The aim is not to borrow as much as possible. It is to buy a home with a finance structure you understand and feel comfortable carrying beyond settlement.

Getting ready to work out your first-home budget?

Nestia Financial can help you understand how different lenders may assess your position, what your borrowing capacity could look like and how that translates into a practical home-buying range. You do not need to have every number worked out before you start the conversation.

General information only. This article does not take into account your objectives, financial situation or needs and is not financial, legal or tax advice. Lending criteria, borrowing capacity, interest rates and government support can change and vary between lenders. Before making a decision, consider whether the information is appropriate for your circumstances and obtain professional advice where required.