Home Loan with HECS Debt? Here's How to Secure Approval

Are you dreaming of owning a home but worried that your HECS debt might stand in the way? You're not alone. Many Australians are in the same boat, trying to navigate the complexities of securing a home loan while carrying a Higher Education Contribution Scheme (HECS) debt. The good news is that having a HECS debt doesn't automatically disqualify you from getting a home loan. In this guide, we'll walk you through everything you need to know about securing a home loan with a HECS debt and how you can make your dream of homeownership a reality.

Understanding HECS Debt and Home Loans

Before diving into the specifics of securing a home loan with a HECS debt, it's important to understand what a HECS debt entails and how it can impact your financial profile. HECS, or the Higher Education Contribution Scheme, is a student loan program that allows Australians to pay for their university education. This debt is repaid through the tax system once your income reaches a certain threshold, which as of 2026, is $54,869 per annum.

Your HECS debt is interest-free, although it is indexed each year to reflect inflation. This means that while you are not paying high interest rates, your debt will still grow over time if it's not being repaid. When applying for a home loan, lenders will consider your HECS debt as part of your overall financial obligations, which can affect your borrowing capacity.

Home Loan Rates and Requirements in 2026

To qualify for a home loan in 2026, lenders will assess several factors including your income, credit score, existing debts, and overall financial situation. Here’s a detailed look at what you can expect:

It's crucial to note that while a HECS debt is considered in your debt assessment, it doesn't carry the same weight as high-interest debts like credit cards or personal loans. Lenders from Esteb and Co's panel of 83+ lenders may have different criteria, so it's important to compare options.

Steps to Secure a Home Loan with a HECS Debt

Securing a home loan while managing a HECS debt requires a strategic approach. Here’s a step-by-step guide to help you navigate the process:

1. Calculate Your Debt-to-Income Ratio: This ratio is key to understanding your borrowing capacity. Include your HECS debt in this calculation to get an accurate picture.
2. Improve Your Credit Score: Pay down existing debts, ensure timely bill payments, and avoid taking on new high-interest debts.
3. Save for a Larger Deposit: A substantial deposit can offset the impact of your HECS debt on your borrowing capacity.
4. Consult a Mortgage Broker: Work with experts, like those at Esteb and Co, who can access a wide range of lenders to find the best deal for your situation.
5. Get Pre-Approval: This will give you a clearer idea of your budget and signal to sellers that you’re a serious buyer.
6. Stay Informed: Keep up with changes in interest rates and lending policies that might affect your loan application.

Expert Tips and Considerations

When aiming to secure a home loan with a HECS debt, there are several key strategies to consider:

• Focus on Income Stability: Lenders favour applicants with stable employment and consistent income growth, which can offset concerns about HECS debt.
• Consider Loan Features: Look for loans that offer flexibility, such as offset accounts or the ability to make extra repayments, which can help manage overall debt.
• Stay Realistic About Property Value: Be realistic about what you can afford. A smaller, more affordable property might be a wise first step on the property ladder.
• Regularly Review Your Financial Situation: Regular financial health checks can help you stay on top of your debt and improve your financial profile over time.

Frequently Asked Questions

1. Does a HECS debt significantly affect my ability to get a home loan?
   While a HECS debt is considered in your overall debt assessment, it’s generally less impactful than high-interest debts like credit cards.
2. Can I make extra payments on my HECS debt to improve my borrowing capacity?
   Yes, making additional payments can reduce your HECS balance, potentially improving your debt-to-income ratio.
3. Is it possible to refinance a home loan if my HECS debt reduces?
   Yes, refinancing can be a great option to secure better terms if your financial situation improves.
4. What if I have other debts alongside my HECS debt?
   Lenders will assess all your debts, so it's important to manage them effectively and prioritize paying off high-interest debts.
5. How does my income level affect my HECS repayments and home loan application?
   Your HECS repayments are income-contingent, which means higher income can increase repayments, affecting your disposable income for loan repayments.
6. Are there specific lenders who are more lenient with HECS debts?
   Yes, some lenders on Esteb and Co’s panel may have more favourable terms for applicants with HECS debts, so it’s worth consulting with a mortgage broker.
7. Should I pay off my HECS debt before applying for a home loan?
   This depends on your overall financial situation. If your HECS debt is affecting your borrowing capacity significantly, it might be worth considering.