Short answer: To buy an $850,000 home in inner Melbourne in mid-2026 with a 20 per cent deposit, you are borrowing around $680,000, which costs roughly $4,030 a month at a typical new owner-occupier variable rate of about 5.9 per cent. As a rough guide, lenders have been landing near five to six times gross household income, so that purchase generally suits a household earning somewhere around $115,000 to $140,000, assuming no other debts. The deposit is no longer the hardest part for most first home buyers. Serviceability is.
These are indicative figures to help you frame the decision, not a lending assessment. Your real number depends on your debts, dependants, expenses and the lender. Talk to a broker or your bank for an actual assessment. We are buyer’s advocates, not credit advisers.
What has changed: the deposit is no longer the wall
For years the honest answer to “what do I need to earn” started with the deposit, because saving 20 per cent while renting was the thing that took a decade. That has genuinely changed.
Since 1 October 2025, the expanded First Home Guarantee lets eligible first home buyers purchase with a 5 per cent deposit and no lenders mortgage insurance, with no income caps and no limit on places. The property price cap for Melbourne and Geelong is $950,000. In practice, that means the government has removed the deposit barrier for a lot of buyers and left them facing the other one.
That other one is serviceability. The RBA cash rate is 4.35 per cent, after three increases through the first half of 2026, and new owner-occupier variable loans have been pricing around 5.9 per cent. Lenders then assess you at roughly three percentage points above the actual rate, so your capacity is tested at close to 9 per cent. That test, not your savings, is what now decides where you can buy.
What the repayments actually look like
These are principal and interest repayments over 30 years at 5.9 per cent, rounded. Rates move; check current pricing.
| Purchase price | Deposit | Loan | Monthly repayment | Indicative household income |
|---|---|---|---|---|
| $700,000 | 20% ($140,000) | $560,000 | $3,320 | $95,000 to $115,000 |
| $850,000 | 20% ($170,000) | $680,000 | $4,030 | $115,000 to $140,000 |
| $850,000 | 5% ($42,500) | $807,500 | $4,790 | $135,000 to $165,000 |
| $1,100,000 | 20% ($220,000) | $880,000 | $5,220 | $150,000 to $180,000 |
The income column is the roughest part of this table, and we would rather say so than pretend otherwise. It assumes no car loan, no credit card limits worth mentioning, no dependants and ordinary living expenses. Every one of those things moves the number, sometimes by a lot. A single $30,000 car loan can cost you $100,000 or more of borrowing capacity.
Do not forget the cash that is not the deposit
At $850,000 you also need the stamp duty. The first home buyer concession phases out at $750,000, so at $850,000 there is no discount and the duty is $46,070. Add conveyancing, building and pest, and a buffer, and you need roughly $50,000 on top of whatever deposit you have put together. This catches people out constantly, and it is why we wrote a full breakdown of the Victorian grants and stamp duty concessions.
It is also a strong argument for looking hard at the band below $750,000, where the duty concession still applies. The difference between buying at $740,000 and $850,000 is not $110,000. Once duty is counted, it is closer to $140,000.
So what does that income actually buy?
Turn the numbers around and the picture is clearer. On roughly $115,000 to $140,000 with a 20 per cent deposit, you are shopping at about $850,000, which in inner Melbourne buys a two-bedroom house in the inner west or north, or a unit or townhouse in a more expensive suburb. We set that out suburb by suburb in our guide to the best inner Melbourne suburbs for first home buyers under $850k.
To buy a three-bedroom house in a suburb like Preston or Coburg, where medians sit above $1.09 million, you are realistically looking at a household income closer to $180,000 with a full deposit, or a second buyer on the loan.
There is no version of this where an average single income buys a family house in a blue-chip inner suburb. Being clear-eyed about that early is worth more than another year of hopeful Saturdays.
Five things that change your number more than you think
Other debts. Car loans, personal loans and even unused credit card limits reduce capacity. Closing a card you do not use is often the cheapest way to borrow more.
How the lender treats your income. Bonuses, overtime, commission and self-employed income are all discounted or shaded differently by different lenders. Two banks can give you numbers $150,000 apart on identical income.
Owner’s corporation fees. On apartments and townhouses these are treated as an ongoing cost and cut into your capacity. A high-fee tower unit costs you more than the price tag suggests.
The buffer. You are assessed at around three percentage points above the real rate. That is deliberate, and it is protecting you as much as the bank.
Buying with less than 20 per cent. Outside the First Home Guarantee, a smaller deposit usually means lenders mortgage insurance, which can run into tens of thousands and is generally added to the loan.
How we would use this
Get a real borrowing capacity from a broker before you look at a single property. Then set your buying limit below it, not at it, because the number a bank will lend you is not the same as the number you should spend. Then narrow to the suburbs and property types that actually work at that limit, and stop looking at the ones that do not.
That is most of what we do for clients in this position. Our first home buyer service and our full-service buyers advocacy are built around making the budget do the deciding, so emotion does not.
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Frequently asked questions
How much do you need to earn to buy a home in inner Melbourne?
As a rough guide in mid-2026, buying at $850,000 with a 20 per cent deposit means a $680,000 loan and repayments of about $4,030 a month at a typical new owner-occupier variable rate of around 5.9 per cent. Lenders have generally been landing near five to six times gross household income, which puts that purchase in the range of roughly $115,000 to $140,000 a year for a household with no other debts. Your actual capacity depends on your debts, dependants and expenses, so get a proper assessment.
How much deposit do you need to buy in Melbourne in 2026?
A 20 per cent deposit avoids lenders mortgage insurance, but it is no longer the only route. Under the expanded First Home Guarantee, eligible first home buyers can buy with a 5 per cent deposit and no LMI, with a Melbourne property price cap of $950,000 and, since 1 October 2025, no income caps and no place limits.
What is the biggest barrier to buying in inner Melbourne now?
Serviceability, not the deposit. Because the First Home Guarantee lets eligible buyers in with 5 per cent down, the binding constraint for most people in 2026 is how much a lender will let them borrow at current assessment rates, not how long it takes to save.
How much stamp duty will I pay buying at $850,000 in Victoria?
$46,070. The first home buyer duty concession phases out at $750,000, so at $850,000 you pay the full general rate of $2,870 plus 6 per cent of the value above $130,000.
Is a smaller deposit with the First Home Guarantee a good idea?
It gets you in sooner and saves the LMI premium, but you borrow more, so repayments are higher and you start with less equity. At an $850,000 purchase, a 5 per cent deposit means a loan around $807,500 and repayments near $4,790 a month, against about $4,030 with a 20 per cent deposit. It is a trade-off between time and monthly cost, not a free win.
