Simple hacks to buy a terrace on a tight budget

Terrace houses are often priced higher than units but lower than freestanding homes, which puts them in an awkward middle ground for first home buyers. You can avoid Lenders Mortgage Insurance entirely and reduce your stamp duty bill to zero if you know which schemes apply and how to stack them.

Can you buy a terrace house with a 5% deposit?

Yes. The Australian Government 5% Deposit Scheme allows you to purchase a home with a 5% deposit and no LMI. The scheme applies to all property types including terraces, provided the property is within the relevant price cap for your area. In Sydney the cap is $1,500,000, in Melbourne and Perth it is $950,000, and in Brisbane it is $1,000,000. Applications are made through a participating lender, not directly through Housing Australia.

Consider a buyer purchasing a terrace in inner Melbourne. The property sits within the $950,000 cap and qualifies under the scheme. The buyer provides a 5% deposit, the lender advances 95%, and Housing Australia guarantees the difference between the deposit and 20% of the property value. No LMI is charged. The same buyer purchasing outside the scheme would typically pay LMI on a loan above 80% of the property value, which can add tens of thousands of dollars to the transaction.

Stamp duty concessions on established terraces

Full or partial stamp duty concessions apply in every state and territory, but thresholds vary. In Victoria, first home buyers pay no transfer duty on properties up to $600,000 and receive a sliding concession up to $750,000. In New South Wales, the exemption applies up to $800,000 with a concession phasing out at $1,000,000. Queensland and South Australia both offer nil duty up to $700,000 and a concession up to $800,000 on established homes.

In Western Australia, the statewide threshold from May this year removed the previous geographic split. No duty is payable on homes valued up to $600,000, and a concessional rate applies up to $800,000. This applies whether the terrace is in Perth, the Peel region, or elsewhere in the state. In the Australian Capital Territory, all eligible first home buyers are fully exempt from conveyance duty regardless of property value or household income from July this year.

Do first home buyer grants apply to terrace houses?

No, not if the terrace is an established home. The First Home Owner Grant is available only for new builds or substantially renovated homes in every jurisdiction that still offers it. In New South Wales and Victoria the grant is $10,000, in Queensland and South Australia it is $15,000, and in Western Australia it is $10,000. Tasmania increased the grant to $20,000 from July this year, and the Northern Territory offers $50,000 under the HomeGrown Territory Grant.

If you are purchasing an established terrace, you will not receive the grant. You can still access stamp duty concessions and the Australian Government 5% Deposit Scheme. If you are purchasing a newly built terrace that has never been occupied, you may qualify for both the grant and the duty concession, depending on the property value and your state's rules.

How to calculate what you need upfront

You need your deposit, plus settlement costs. Settlement costs include government fees, lender fees, conveyancer or solicitor fees, building and pest inspections, and any adjustment for rates or water. These typically sit between $8,000 and $15,000 depending on the state and the complexity of the transaction.

If you are using the 5% Deposit Scheme and qualify for a full stamp duty exemption, your cash requirement is lower than it would be under a standard loan structure. A home loan application through a participating lender will confirm your eligibility for the scheme and whether you meet the first home buyer criteria for your state's duty concession. If you are contributing a larger deposit, for example 10% or 20%, you may still benefit from duty concessions but will not need the federal guarantee.

Using an offset account or redraw from day one

Many first home buyers do not realise they can attach an offset account to their loan from settlement. An offset account is a transaction account linked to your home loan. The balance in the offset reduces the amount of interest charged on the loan without reducing the loan balance itself. If your loan is $750,000 and you hold $20,000 in the offset, you are charged interest on $730,000.

Redraw works differently. If you make extra repayments above your minimum monthly payment, those extra amounts can usually be withdrawn later if needed. Not all lenders offer redraw on every product, and some charge a fee or limit the number of redraws per year. Variable interest rate loans typically include both offset and redraw features, while fixed interest rate loans often restrict or exclude them. If you want the flexibility to access surplus funds during the fixed period, choose a split loan structure or confirm the features available on the fixed portion before you lock in the rate.

Choosing between a fixed or variable interest rate

A fixed interest rate gives you certainty over your repayments for a set term, usually between one and five years. A variable interest rate can move up or down in response to market conditions. Most lenders allow you to split your loan between fixed and variable portions, which gives you some rate protection while keeping access to offset and redraw features on the variable portion.

In our experience, first home buyers purchasing terraces in inner suburbs often prefer a split structure. They fix a portion to manage repayment risk in the early years and keep the remainder variable to benefit from any future rate cuts and maintain access to an offset account. If you fix the entire loan and rates fall, you may face break costs if you want to refinance or sell before the fixed term ends. If you leave the entire loan variable and rates rise, your repayments increase immediately.

Pre-approval before you start looking

Getting pre-approval gives you a clear borrowing limit and confirms your eligibility for the 5% Deposit Scheme and any applicable state concessions. Pre-approval is not a guarantee, but it is a formal assessment based on your income, expenses, credit history, and deposit. Lenders typically issue pre-approval for three to six months, which gives you time to find a property and make an offer with confidence.

If you are planning to use a gifted deposit from a family member, let your broker know at the pre-approval stage. Most lenders accept genuine savings, gifted funds, or a combination of both under the 5% Deposit Scheme, but they will ask for a signed declaration from the person providing the gift. Some lenders also accept funds from the First Home Super Saver Scheme, which allows you to make voluntary contributions into your super fund and withdraw up to $50,000 toward your deposit.

Call one of our team or book an appointment at a time that works for you. We will walk through your situation, confirm which schemes you qualify for, and structure your application to reduce your upfront costs and ongoing repayments.

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