How much can I borrow?

How much can I borrow for a home loan?

How much you can borrow is driven by serviceability — the lender's assessment of whether you can comfortably repay the loan — not just the size of your deposit. As a very rough guide, many borrowers can borrow somewhere around five to six times their gross annual income, but the real figure depends on your living expenses, existing debts, the number of people you support, and the interest rate the lender uses to test you. Two people on the same salary can have very different borrowing power once debts and expenses are counted.

The most reliable way to know your number is to run a borrowing-power calculation and then get a pre-approval, which is a lender's conditional commitment based on your actual figures.

How lenders calculate your borrowing power

A lender starts with your net (after-tax) income, subtracts your living expenses, subtracts the commitments on any existing debts, and the surplus is what's available to service a new loan. Two things make the result more conservative than borrowers expect. First, lenders measure living expenses against a benchmark (the Household Expenditure Measure, or HEM) and use the higher of your declared expenses or that benchmark. Second, under APRA's serviceability rules they don't test you at the actual rate — they add a buffer of around three percentage points on top and check you could still afford the repayment. So a loan advertised at 6% is typically assessed at about 9%.

What reduces how much you can borrow

Existing commitments cut your borrowing power, sometimes by more than people expect — a credit card is assessed on its limit, not its balance, so an unused $20,000 card can knock tens of thousands off what you can borrow.

• Credit card limits (assessed even if the balance is zero).
• Personal loans, car loans, and buy-now-pay-later commitments.
• HECS/HELP repayments, which reduce your assessable income.
• Dependants and higher living expenses.
• Irregular income — casual, contract or self-employed income is often discounted.

How to increase your borrowing power

The fastest levers are usually on the debt side, not the income side. Reducing or cancelling credit card limits, clearing small consumer debts, and tidying up your spending in the months before you apply can each move the number materially. A bigger deposit, a longer loan term, applying jointly, and choosing a lender whose assessment policy suits your income type all help too.

Borrowing power isn't fixed — it's a snapshot of your finances on the day you apply. Small changes to your debts and spending in the months beforehand can shift it by tens of thousands of dollars.

• Lower or close credit card and BNPL limits you don't need.
• Pay down or consolidate car and personal loans.
• Trim discretionary spending for a few months before applying.
• Increase your deposit, or apply with a co-borrower.
• Compare lenders — assessment policies vary, especially for self-employed and bonus income.

Borrowing power vs deposit — which one limits you?

You're capped by whichever is smaller: how much a lender will lend you (serviceability) or how much your deposit lets you borrow (the loan-to-value ratio, usually up to 95% of the property value). A big deposit doesn't help if you can't service the repayments, and strong serviceability doesn't help if you haven't got the deposit. Work out both, then aim at properties inside the lower of the two figures.

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