How Much Can You Borrow for a Home Loan?
Thinking about buying a home or refinancing your mortgage? One of the first questions on your mind is probably: “How much can I borrow?”
It’s a great question — and the answer isn’t as simple as a single number. Your borrowing capacity depends on several key factors, and understanding them can help you plan effectively and avoid surprises.
1. Your Income
Lenders consider all sources of income when assessing your borrowing power. This includes your salary, bonuses, overtime, rental income, or other regular income streams. The more consistent and verifiable your income, the more confidence lenders have that you can manage repayments.
2. Your Expenses
Your everyday living costs matter just as much as your income. Lenders look at monthly bills, personal loans, credit card repayments, and other debts to understand your financial commitments. The lower your expenses relative to your income, the more you may be able to borrow.
3. Your Credit Score
A strong credit history can open doors to better loan options and lower interest rates. If your credit score is lower, lenders may view your application as higher risk, which could affect the amount you’re approved for or the interest rate you’re offered. It’s worth checking your credit report and resolving any issues before applying.
4. Loan-to-Value Ratio (LVR)
The Loan-to-Value Ratio compares the amount you want to borrow to the value of the property. For example, if you’re buying a $500,000 home and want to borrow $450,000, your LVR is 90%. Higher LVRs can be riskier for lenders and may require lenders mortgage insurance, which can affect affordability.
5. Interest Rates
The interest rate you qualify for impacts your repayments and borrowing power. Even a small difference in rates can significantly affect how much you can comfortably borrow. Lenders may offer different rates based on your risk profile, loan type, and other factors.
Other Considerations
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Future expenses: Lenders often consider potential life changes like starting a family, career changes, or other financial commitments.
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Deposit size: A larger deposit reduces your LVR and may increase your borrowing power while reducing your overall costs.
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Loan type and term: Fixed vs variable rates, loan features, and the length of your loan also play a role in what you can borrow.
*Borrowing more than you can comfortably repay can create stress and financial risk. It’s important to get a realistic understanding of your borrowing power and plan for unexpected changes.
Next Step
If you want a clear picture of your borrowing capacity, book a free, personalized assessment with our team. We’ll walk you through your options, explain the numbers, and help you plan your next move with confidence.