What Are the Steps for First Home Buyers Buying a Townhouse?

What First Home Buyers Should Know Before Buying a Townhouse in Perth

Buying a townhouse as your first property means you're often working with a tighter deposit and competing against investors who can move faster. The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with just a 5% deposit without paying Lenders Mortgage Insurance, and in Perth that means a property valued up to $850,000. You still need to cover settlement costs and have genuine savings, but the barrier to entry is lower than it was a few years ago.

In Perth, townhouses sit in a middle ground between apartments and freestanding houses. They're more affordable than a house in the same suburb, but they come with strata fees and shared walls. For someone buying their first home, that trade-off often makes sense. You get more space than an apartment, usually with a small courtyard, and you're often closer to work or transport than you'd be if you were chasing a house at the same price.

The combination of the 5% Deposit Scheme and Western Australia's First Home Owner Rate of duty can bring the upfront cost down substantially. For a townhouse valued at $600,000 or less, you pay no stamp duty at all. Between $600,001 and $800,000, a concessional rate applies. That means you could be looking at a purchase with a deposit of around $30,000 to $42,500 and minimal or no duty, depending on the property value.

How the 5% Deposit Scheme Works for Townhouse Purchases

The 5% Deposit Scheme is administered by Housing Australia, but you apply through a participating lender. You don't lodge an application directly with the government. Your deposit needs to be genuine savings, which means funds you've held for at least three months, a gift from a family member, or proceeds from the sale of another asset. Lenders will ask for evidence.

Consider a buyer purchasing a townhouse in Canning Vale. The property is valued at $650,000. With a 5% deposit, they contribute $32,500. Housing Australia guarantees the difference between that deposit and 20% of the property value, which removes the need for LMI. On top of the deposit, the buyer still needs to cover settlement costs such as loan establishment fees, conveyancing, building and pest inspections, and council rates adjustments. That usually adds another $8,000 to $12,000 depending on the lender and the property.

Because the property is valued above $600,000 but below $800,000, the First Home Owner Rate applies. The duty is calculated at $16.15 for every $100 above $600,000. For a $650,000 townhouse, that works out to around $8,075 in stamp duty. If the same buyer were purchasing an established home without the concession, the duty would be closer to $23,000. The concession alone saves over $14,000.

First Home Owner Grant and Why It Doesn't Apply to Most Townhouses

The First Home Owner Grant in Western Australia is $10,000, but it only applies to new homes. That means a townhouse that's never been occupied, or one you're building as part of a land and build package. If you're buying an established townhouse, even one that's only a few years old, the grant doesn't apply.

For buyers looking at new townhouses, the property must be valued at $800,000 or less if it's located south of the 26th parallel, which covers all of Perth. If the townhouse is north of that line, the cap rises to $1,000,000. You need to move into the property within 12 months of completion and live there for at least six continuous months. The grant is paid after settlement, usually within a few weeks of lodging your application through RevenueWA.

In our experience, buyers purchasing new townhouses in growth corridors such as Baldivis or Ellenbrook often combine the grant with the 5% Deposit Scheme and the stamp duty concession. That stacks the available support and reduces the cash needed at settlement. But the grant isn't available for the majority of townhouse stock in Perth, which is established rather than brand new.

What Stamp Duty Concessions Apply in Western Australia

The First Home Owner Rate of duty changed in May this year. Previously, different thresholds applied depending on whether you were buying in the Perth metropolitan area or a regional location. That distinction has been removed. Now, a single statewide threshold applies to all purchases in Western Australia.

For homes valued up to $600,000, no duty is payable. For homes valued between $600,001 and $800,000, a concessional rate of $16.15 per $100 above $600,000 applies. The maximum dutiable value to access the concession is $800,000. If the property is valued above that amount, the concession doesn't apply and standard duty rates are charged.

This concession applies to both new and established homes, and it applies to townhouses. You need to occupy the property as your principal place of residence, and at least one applicant must be an Australian citizen or permanent resident. You can't have previously owned property in Australia, and your spouse or partner can't have owned property either.

For a townhouse valued at $750,000, the duty under the concession is around $24,225. Without the concession, it would be closer to $27,000. The saving isn't as large at higher price points, but it still reduces the upfront cost.

Borrowing Capacity and What Lenders Actually Assess

Lenders don't just look at your income when they assess a home loan application. They calculate your borrowing capacity by taking your income, subtracting your living expenses, and factoring in any existing debts such as car loans, credit cards, or buy now pay later accounts. They also apply a buffer to the interest rate, usually around 3%, to make sure you can still afford repayments if rates rise.

Strata fees on a townhouse are treated as an ongoing expense. If the strata is $1,200 per quarter, that's $400 per month the lender will subtract from your available income. Council rates, water rates, and any body corporate levies are also factored in. That can reduce your borrowing capacity by $30,000 to $50,000 compared to a freestanding house with lower outgoings.

In a scenario where a couple earning a combined income of $120,000 applies for a loan, they might be approved for around $550,000 to $650,000 depending on their debts and expenses. If they have a 5% deposit and are using the government scheme, they could comfortably target townhouses in the $600,000 to $680,000 range in suburbs such as Rockingham, Canning Vale, or parts of Scarborough. If they're carrying credit card debt or a car loan, that range contracts.

Pre-Approval and Why It Matters When You're Competing with Investors

Townhouses attract investors because they're lower maintenance than houses and they often return higher yields than apartments. That means you're competing with buyers who may have larger deposits, no loan conditions, and the ability to settle faster. Pre-approval gives you certainty about what you can borrow and shows sellers you're ready to move.

Pre-approval is a conditional loan approval based on your financial position and the lender's assessment of your application. It's usually valid for three to six months. It doesn't guarantee final approval because the lender still needs to assess the specific property, but it removes most of the uncertainty.

When you make an offer on a townhouse, having pre-approval means you can negotiate with confidence. Sellers and agents take you more seriously, and you're less likely to lose the property to another buyer while you're waiting for loan approval. In Perth's current market, where stock in the mid-range is limited and turnover is quick, that timing can be the difference between securing the property and missing out.

Offset Accounts and Loan Features That Actually Matter

Not every loan product offered under the 5% Deposit Scheme includes an offset account. Some participating lenders offer offset, others offer redraw, and some offer neither. An offset account is a transaction account linked to your loan. The balance in the offset reduces the amount of interest you're charged without locking the funds away. Redraw lets you access extra repayments you've made, but it's not as flexible and some lenders charge fees or limit how often you can access it.

For first home buyers, an offset account is useful if you're planning to build up savings again after settlement or if you receive irregular income such as bonuses or commissions. You park that money in the offset and it reduces your interest straight away. With redraw, you need to make extra repayments first, and then apply to withdraw them later.

Some lenders on the 5% Deposit Scheme panel offer variable rates with offset. Others offer fixed rates without offset. You need to confirm what features are included with each lender before you commit. If offset matters to you, that might narrow your lender choice. If you're happy with a fixed rate and you're prioritising rate certainty, you might not need it.

Choosing Between a Fixed Rate and a Variable Rate Loan

A fixed interest rate locks in your repayment amount for a set period, usually one to five years. A variable interest rate moves up or down depending on what the lender does with their rates. Fixed gives you certainty, variable gives you flexibility.

If you fix and rates drop, you don't benefit unless you break the loan early, and that usually comes with break costs. If you're on a variable rate and you want to make extra repayments or pay the loan off early, most lenders allow that without penalty. Fixed rate loans often limit extra repayments to a set amount per year, sometimes $10,000 or $20,000.

Some buyers split their loan, fixing part and leaving part variable. That gives you some rate protection and some flexibility. Whether that makes sense depends on your income stability, how much you plan to repay above the minimum, and how long you're planning to stay in the property. If you're buying a townhouse as a stepping stone and you think you'll upgrade in three to five years, a variable rate or a short fixed term might suit you better than locking in for five years.

Settlement Costs Beyond the Deposit

Your deposit is only part of what you need to have saved. Settlement costs include conveyancing, loan establishment fees, building and pest inspections, any lender valuation fees, and adjustments for council rates and water rates. If the property is in a strata scheme, there may also be a pro-rata adjustment for strata fees already paid by the seller.

Conveyancing usually runs between $1,200 and $2,000 depending on the complexity of the sale. Building and pest inspections cost around $500 to $800 combined. Loan establishment fees vary by lender but are often between $600 and $1,000. If the lender orders a valuation, that's another $200 to $400. Adjustments for rates and strata can add another $1,000 to $2,000 depending on when the property settles.

All up, you're looking at $8,000 to $12,000 in settlement costs on top of your deposit. Some buyers try to roll these costs into the loan, but most lenders won't allow that under the 5% Deposit Scheme because it pushes your loan-to-value ratio above 95%. You need to have those funds available in cash.

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