Everything You Need to Know About Buying a Townhouse

Why Townhouses Work for First Home Buyers

Townhouses offer a practical entry point into the property market for many first home buyers. They typically sit between apartments and standalone houses in both price and ongoing costs, making them accessible without sacrificing space or outdoor access entirely.

The appeal comes down to affordability and livability. A two-bedroom townhouse in an outer-ring suburb can often be purchased for less than a one-bedroom apartment closer to the city centre, while still providing a small courtyard and dedicated parking. Strata fees on townhouses also tend to be lower than apartments because there are fewer shared facilities to maintain. For buyers who want room to grow but cannot yet afford a detached house, a townhouse can deliver that balance.

Understanding Deposit Requirements for Townhouses

Most lenders require a minimum deposit of 5% to 10% of the purchase price when you buy a townhouse as a first home buyer. If you have a 10% deposit or more, you may be eligible for a standard home loan with Lenders Mortgage Insurance (LMI) added to cover the lender's risk. If you have a smaller deposit, the First Home Guarantee can help you avoid paying LMI altogether, provided you meet the eligibility criteria.

Consider a buyer purchasing a townhouse near Melton in Victoria's outer west. The median townhouse price in that area sits well within the federal scheme's property cap. With a 5% deposit, the buyer can access the First Home Guarantee and proceed without LMI, reducing upfront costs significantly. Without the scheme, the same buyer would face LMI charges that could add thousands to the loan balance or require a larger deposit to avoid.

It is also worth noting that lenders assess townhouses differently to apartments. A townhouse with its own title on a small block is generally viewed more favourably than a unit in a large complex, which can mean more flexible lending criteria and better access to home loan options.

First Home Buyer Grants and Concessions by State

Eligible first home buyers can combine federal schemes with state-based grants and stamp duty concessions, and the benefits vary widely depending on where you buy. In New South Wales, a first home buyer purchasing a new townhouse valued under $600,000 can receive a $10,000 grant, along with a stamp duty exemption if the property is valued under $800,000. In Queensland, the current grant for new homes is $30,000 for properties under $750,000, running until 30 June 2026. Victoria offers a $10,000 grant for new homes up to $750,000 and a stamp duty exemption for properties under $600,000.

For established townhouses, stamp duty concessions still apply in most states if you meet first home buyer eligibility criteria, even though cash grants are typically reserved for new builds. In South Australia, first home buyers pay no stamp duty on established homes up to $650,000, and in Tasmania, no duty applies to established homes valued up to $750,000 until 30 June 2026.

If you are buying in the Northern Territory, the HomeGrown Territory Grant offers $50,000 for new homes and $10,000 for established properties, with no price cap on either. This makes the NT one of the most generous jurisdictions for first home buyers, though the program is scheduled to end on 30 September 2026.

Fixed or Variable: Structuring Your Townhouse Loan

When applying for a home loan to purchase a townhouse, you will need to decide whether to lock in a fixed interest rate, keep the loan on a variable rate, or split the loan between both. A fixed rate provides certainty over repayments for a set period, usually between one and five years. A variable rate allows you to make extra repayments without penalty and benefit from any rate cuts, while also giving you access to features like an offset account or redraw facility.

Many first home buyers choose a split loan structure, fixing a portion of the loan to protect against rate rises while keeping the remainder on a variable rate for flexibility. This approach can work well if you expect your income to increase or plan to make lump sum repayments over time. The exact split depends on your financial situation, risk tolerance, and how long you plan to stay in the property.

Lenders assess townhouses based on location, condition, and whether the property is part of a strata scheme. A townhouse on its own title in a growth suburb will generally attract better interest rate discounts than a property in a declining area or a large complex with high strata fees. This is why it is worth discussing your specific property with a mortgage broker before committing to a purchase.

How Pre-Approval Helps When Buying a Townhouse

Getting pre-approval before you start looking at townhouses gives you a clear borrowing limit and shows sellers that you are a serious buyer. Pre-approval is not a guarantee, but it confirms that a lender is willing to lend you a certain amount based on your income, expenses, and deposit. This becomes particularly useful in competitive markets where sellers may favour buyers who can move quickly.

The pre-approval process involves submitting proof of income, savings, identification, and details of any existing debts. The lender will also assess your living expenses and any ongoing financial commitments to determine how much you can comfortably borrow. Once approved, you typically have between three and six months to find a property and make an offer.

In our experience, buyers who secure pre-approval early are better positioned to negotiate on price and settlement terms, particularly when buying off-the-plan townhouses where developers may offer incentives to buyers who can settle quickly.

Using the First Home Super Saver Scheme to Build Your Deposit

The First Home Super Saver Scheme allows you to save for a deposit inside your superannuation account, where contributions are taxed at 15% rather than your marginal tax rate. You can contribute up to $15,000 per financial year and withdraw a total of up to $50,000 to use as a deposit when you buy your first home.

This scheme works particularly well for buyers who are still building their deposit and have a year or more before they plan to purchase. Voluntary concessional contributions made through salary sacrifice or personal deductible contributions count towards the scheme, and the tax saving can be substantial for anyone earning above the tax-free threshold.

Once you are ready to buy, you apply to the Australian Taxation Office to release the funds. The withdrawn amount is then taxed at your marginal rate minus a 30% offset, which still results in a net tax benefit compared to saving the same amount in a standard bank account. Buyers using this scheme can combine the withdrawn super with other savings, a gift deposit from family, or the First Home Guarantee to reach the required deposit amount.

What Lenders Look for in a Townhouse Loan Application

Lenders assess your home loan application based on income, savings history, existing debts, and the property you are buying. For a townhouse purchase, they will also review the strata report to check for any upcoming major works, the financial health of the owners corporation, and whether the complex has any structural issues or disputes.

A townhouse with a small number of lots and low strata fees is generally viewed more favourably than a unit in a large complex. Lenders also prefer properties in areas with strong demand and steady price growth, as this reduces their lending risk. If you are buying in a regional area, some lenders may apply a higher interest rate or require a larger deposit, depending on the location and local market conditions.

Your savings history matters as much as the deposit amount. Lenders want to see genuine savings held in your account for at least three months, rather than a lump sum that appeared recently. If part of your deposit is a gift from family, most lenders will accept this as long as you also have some of your own savings and the gift is accompanied by a signed declaration.

Strata Considerations When Buying a Townhouse

Unlike a standalone house, most townhouses are part of a strata scheme, which means you share responsibility for common areas and pay regular strata levies. The strata report will show the current levy amount, any planned maintenance or upgrades, and whether the owners corporation has sufficient funds in reserve.

Before committing to a purchase, review the strata report carefully. Look for any mentions of special levies, which are one-off charges to cover unexpected repairs or major works. A townhouse complex with ageing infrastructure or deferred maintenance can result in large special levies down the line, which can strain your budget if you are not prepared.

Strata fees on townhouses are typically lower than apartments because there are fewer shared facilities, but they can still vary widely depending on the size of the complex and what is included. Some complexes include building insurance, garden maintenance, and pest control in the levy, while others cover only the bare minimum. Understanding what you are paying for will help you budget accurately and avoid surprises after settlement.

Choosing the Right Loan Features for Your Situation

When comparing loan options, consider whether features like an offset account, redraw facility, or the ability to make extra repayments will benefit you. An offset account links to your home loan and reduces the interest charged based on the balance you hold in the account. This can be useful if you have irregular income or want to keep savings accessible while still reducing interest costs.

A redraw facility allows you to withdraw any extra repayments you have made on the loan, which can provide a financial buffer in case of unexpected expenses. However, redraw is only available on variable rate loans, and some lenders place restrictions on how much you can withdraw or charge fees for each redraw transaction.

If you are fixing part or all of your loan, you will generally lose access to offset and redraw on the fixed portion, and there may be limits on how much extra you can repay without incurring break costs. For first home buyers who value certainty over flexibility, this trade-off is often worth it, but it is something to weigh up based on your own circumstances and financial goals.

Call one of our team or book an appointment at a time that works for you to discuss your townhouse purchase and find a loan structure that fits your situation.

Frequently Asked Questions