Home Loan with HECS Debt? Discover Approval Secrets

You're considering buying your first home, but there's a nagging doubt: your HECS debt. For many Australians, HECS debt is a reality of pursuing higher education, and it can feel like a barrier to achieving your dream of home ownership. But don't worry, you're not alone, and securing a home loan with HECS debt is entirely possible. Let's explore how you can navigate this situation effectively.

Understanding HECS Debt and Its Impact on Home Loans

HECS (Higher Education Contribution Scheme) debt is a government loan designed to help students pay for their university education in Australia. This debt is repaid through the tax system once your income exceeds a certain threshold, which as of 2026, is $51,550. Many prospective homebuyers are concerned about how this debt affects their borrowing capacity and mortgage eligibility.

In essence, HECS debt is considered when lenders assess your financial situation. It reduces your disposable income and can influence the amount you're eligible to borrow. However, with careful planning and the right strategy, it doesn’t have to stand in the way of your home ownership goals.

Key Information: Loan Rates, Requirements, and Options

Lenders consider various factors when assessing your home loan application. Here's how HECS debt fits into that picture:

• Interest Rates: Generally, home loan interest rates in 2026 range from 6.49% to 12%, depending on factors like your credit score and deposit size.
• Borrowing Capacity: HECS debt affects your borrowing capacity as it reduces the income available for loan repayments. Lenders typically use a formula to calculate how much you can borrow, considering all existing debts.
• Credit Score: While HECS debt itself doesn't impact your credit score, your repayment history does. Ensure you're consistently meeting your HECS repayment obligations.

Here's a comparison of how HECS debt can affect different borrowing scenarios:

Scenario	Income	Borrowing Capacity
No HECS Debt	$80,000	$600,000
With HECS Debt	$80,000	$550,000

It's clear that while HECS debt reduces borrowing capacity, it doesn't eliminate the possibility of securing a home loan.

Steps to Secure a Home Loan with HECS Debt

Here’s a step-by-step guide to help you navigate the home loan process with HECS in mind:

1. Assess Your Financial Situation: Calculate your total debt, including HECS, and understand your current income and expenses. This will give you a clear picture of your financial standing.
2. Check Your Credit Score: Ensure your credit history is in good shape. If there are any discrepancies, address them before applying for a loan.
3. Consult a Mortgage Broker: At Esteb and Co, we work with over 83 lenders. Our brokers can offer insights into which lenders might be more favourable towards applicants with HECS debt.
4. Save for a Deposit: Aim for at least a 20% deposit to improve your loan terms and may even help you avoid Lenders Mortgage Insurance (LMI).
5. Submit Your Application: Provide detailed documentation of your income, expenses, and debts. Your broker can guide you through ensuring your application is as strong as possible.

Tips and Considerations

Here are some expert tips to enhance your chances of securing a home loan despite having HECS debt:

• Increase Your Income: Consider ways to boost your income, such as taking on additional work or negotiating a raise. This can offset the impact of your HECS debt on borrowing capacity.
• Reduce Other Debts: Pay down high-interest debts like credit cards or personal loans to improve your debt-to-income ratio.
• Consider a Joint Application: Applying with a partner can combine incomes and increase borrowing capacity.
• Explore Different Lenders: Different lenders have varying policies on HECS debt. A broker can help identify which of our 83+ panel lenders are most accommodating.

Frequently Asked Questions

1. Does HECS debt affect my credit score?

No, HECS debt itself does not appear on your credit report, but missed repayments can affect your credit history.

2. Can I pay off my HECS debt quickly to improve my borrowing capacity?

Yes, paying off your HECS debt faster can increase your disposable income, thereby improving your borrowing capacity.

3. Is it harder to get a loan with a large HECS debt?

Not necessarily. While a large HECS debt affects your borrowing capacity, other factors like income, credit score, and deposit size are also considered.

4. Can I include HECS repayments in my home loan application?

Lenders will automatically consider HECS repayments as part of your financial obligations, so you don’t need to include them separately.

5. How does a broker help with HECS debt concerns?

A mortgage broker can provide personalised advice and connect you with lenders who are more lenient with HECS debt, maximising your chances of approval.

Navigating the home loan landscape with HECS debt might seem daunting, but with the right approach and guidance, it's a challenge you can overcome. At Esteb and Co, we're committed to helping you find a lender that understands your unique financial situation. Reach out to us today to take the first step towards your home ownership dream.