Last Updated on June 11, 2025 by Admin
Understanding how much you can borrow for a home loan is one of the most important steps when preparing to buy property. It gives you a clear idea of your price range and helps you avoid wasting time looking at homes outside your budget. While calculators can offer a rough estimate, lenders consider a wide range of factors before offering loan approval.
Let’s explore the 10 key elements that influence your borrowing capacity.
1. Your Income
Your income forms the foundation of your borrowing power. It includes wages, bonuses, rental income, and even certain government payments. Full-time, permanent employment is viewed most favourably, while casual or freelance income may be scrutinised more heavily. Lenders are looking for consistency and reliability, so irregular earnings can limit how much they’re willing to offer.
2. Existing Debts
Lenders assess your ability to take on more debt by analysing what you already owe. Credit cards, personal loans, car finance, and even HECS-HELP debts all come into play. Even if you don’t use the full limit on your credit cards, lenders assume you could, which may reduce your borrowing capacity. Paying off or consolidating existing debts can significantly boost your loan prospects.
3. Your Living Expenses
In recent years, banks have become far more rigorous in assessing living costs. They’ll ask for a detailed breakdown of your monthly spending—groceries, utilities, school fees, transport, subscriptions, and more. If your spending is high relative to your income, it will reduce how much you can borrow, even if you’re otherwise in a strong financial position.
4. Credit Score and History
A clean credit history shows lenders that you’re responsible with money. If you’ve made late repayments, defaulted, or have too many enquiries on your credit file, lenders may see you as higher risk. Your credit score plays a subtle but important role, potentially influencing the amount you can borrow and whether you’re eligible for better interest rates.
5. Loan Type and Repayment Term
The type of loan you choose—interest-only or principal and interest—can affect your borrowing capacity. Interest-only loans generally have lower monthly repayments initially, which may result in a higher loan amount approved. Likewise, a longer loan term spreads your repayments over more years, reducing monthly obligations and increasing the amount a lender is willing to offer.
6. Interest Rate Assumptions
Lenders don’t just assess your ability to repay the loan based on current interest rates—they apply a buffer, usually 2–3% higher, to test your ability to manage repayments if rates rise. This is known as the “serviceability rate” and plays a big role in how much you can borrow.
7. Size of Your Deposit
The more you have saved, the better your position. A higher deposit reduces your loan-to-value ratio (LVR), making you a more attractive borrower. Lenders prefer an LVR of 80% or lower, which means you’re contributing at least 20% of the property’s value. A smaller deposit may still get you over the line, but you could be charged Lenders Mortgage Insurance (LMI), which increases your overall costs.
8. Number of Dependents
If you have children or other dependents, lenders take this into account as part of your financial obligations. More dependents generally mean higher living expenses and less disposable income, which can reduce how much you can borrow.
9. Type and Location of Property
Not all properties are viewed equally by lenders. Small apartments, off-the-plan purchases, or properties in remote areas may be seen as riskier investments, which could impact the size of the loan you’re offered. Lenders also look at market trends in specific suburbs when assessing a property’s resale value.
10. The Lender You Choose
Each lender has its own criteria, policies, and appetite for risk. That’s why working with the best mortgage broker Sydney has available can make a major difference. Brokers understand which lenders are more flexible with self-employed applicants, those with dependents, or borrowers looking at niche properties. A good broker will match you with a lender whose policies align with your financial profile—maximising your borrowing potential and saving you time and stress.
Improving Your Borrowing Capacity
If your borrowing power isn’t where you want it to be, there are several steps you can take to improve it:
- Reduce credit card limits or pay off personal loans.
- Trim unnecessary expenses and track your spending.
- Build a larger deposit through savings or gifts.
- Ensure your taxes are up to date, particularly if you’re self-employed.
- Avoid large purchases or new credit applications before applying.
A strategic approach not only improves your odds of approval but also positions you for better loan terms.
Final Thoughts
Knowing how much you can borrow puts you in control of your property search. It helps you shop with confidence, avoid disappointment, and make realistic offers. With so many variables at play, personalised advice can be the difference between an average deal and a smart financial decision.
For expert help navigating your options and connecting with the right lender, consider working with professionals who truly understand your local market. You can find a trusted advisor through OurTop10, where top-rated mortgage brokers, accountants, and buyer’s agents are vetted to help you make confident property decisions.
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