A broker's plain-English guide
How much can you actually borrow?
There's no single answer. Your borrowing power is a number each lender works out differently. Here is what actually decides it, and how to improve it.
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"How much can I borrow?" is usually the first question, and the honest answer is: it depends. Two lenders looking at the same person can come out tens of thousands of dollars apart. Knowing why can mean borrowing more than the first number you are quoted.
As a very rough starting point, many borrowers can access somewhere around five to six times their gross annual income. That is a rough guide, not a promise. The real figure comes down to a few things every lender looks at.
What lenders actually look at
- Your income, and its type.Salary is read differently from overtime, bonuses, commissions, casual work or self-employed income. Some lenders count 100% of overtime; others count half. This alone can move your number a long way.
- Your living expenses.Lenders use the greater of your declared expenses or a benchmark figure for your household. Your recent bank statements matter here.
- Existing debts and limits.Car loans, personal loans, HECS/HELP, buy-now-pay-later, and even the limit on a credit card you never use all reduce what you can borrow.
- Your deposit and the loan-to-value ratio.A bigger deposit lowers your LVR, which can get you a lower rate and avoid lenders mortgage insurance, though capacity is mostly driven by income and expenses, not deposit size. First home buyers can often buy with a 5% deposit and no LMI under the First Home Guarantee.
- Dependants and household size.More people to support means higher assessed living costs, which lowers borrowing power.
The buffer that surprises everyone
Here's the part most people don't expect: lenders don't assess you at the actual interest rate. They add a buffer on top, commonly around three percentage points, and check you could still afford the repayments if rates climbed that far. So a loan advertised at, say, 6% might be assessed at around 9%. It's a safety margin, and it's the single biggest reason your approved amount comes in lower than a basic online calculator suggests.
How to increase your borrowing power
- Lower or close credit card limits. Lenders count the full limit as a liability, not your balance. Reducing a limit you don't need can lift your capacity quickly.
- Clear or consolidate small debts. A car loan or personal loan repayment counts heavily. Paying one off before you apply frees up serviceability.
- Cut back on non-essential spending for a few months. Lenders look at recent statements, so a few tidy months before you apply lowers your assessed expenses.
- Choose the right lender for your income. If you rely on overtime, bonuses or self-employed income, the lender you pick matters enormously. This is a big part of what a broker does.
- Apply jointly where it makes sense. A second income can lift capacity, though a co-applicant's debts come along too.
Get a real number, not a guess
Online calculators are a useful starting point. Our borrowing power calculator gives you a rough figure in a minute. But the figure that counts is the one a lender will actually approve, and that takes matching your specific situation to the right lender's policy.
The first number you are quoted is not the only number
If a lender's borrowing figure has come in lower than you hoped, it is worth a second opinion before you give up on your plans. Often it is the lender's policy, not your finances, that sets the limit. We'll check your situation across the panel, free, and tell you honestly what's realistic.
Good questions
Borrowing power questions
As a rough guide, many borrowers can access around five to six times their gross annual income, but the real figure depends on your income, expenses, existing debts, deposit and the lender. Two lenders can come out tens of thousands apart on the same person.
Lenders assess you at a buffer above the actual rate (commonly around three percentage points) to check you could cope if rates rose. Credit card limits, other debts and living expenses reduce the figure too.
Reducing or closing credit card limits, clearing small debts, trimming discretionary spending before you apply, and choosing a lender whose policy suits your income type all help. A broker compares lenders to find the one whose policy suits you.
A bigger deposit lowers your loan-to-value ratio, which can open up better rates and avoid lenders mortgage insurance, but your borrowing capacity is driven mainly by income and expenses, not deposit size.
Want to know your real number?
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