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Before you apply though, you can work out a rough idea of your borrowing power by looking at:
You can also put some figures into our borrowing power calculator to get a quick estimate.
Borrowers typically save a 10% or 20% deposit. The smaller your deposit, the more you have to borrow. This makes your repayments more expensive and it may limit how much you can borrow.
Here are some examples of how much you would have to borrow with different property values, plus repayments, based on a 20% deposit size and a 6.00% interest rate.
| Property value | 20% deposit | Borrowing amount | Monthly repayment |
|---|---|---|---|
| $400,000 | $80,000 | $320,000 | $1,919 |
| $600,000 | $120,000 | $480,000 | $2,878 |
| $800,000 | $160,000 | $640,000 | $3,838 |
| $1,000,000 | $200,000 | $800,000 | $4,797 |
You can use a loan repayment calculator to try similar calculations based on your needs. This will help you get a better idea of what you can afford to borrow.
But how much will your lender let you borrow? That's a different question.
Lenders decide how much you can borrow based on what's known as serviceability calculations. These calculations take into account your income and your expenses. Lenders then look at the proposed mortgage debt as a proportion of your monthly income and build in a buffer for potential interest rate rises.
Lenders will typically look at whether you can pay +3% on top of the interest rate you're applying for.
Every lender works out your borrowing capacity with its own formula, which means the amount you can borrow will vary between lenders. Their calculations will depend on things like:
To maximise your chances of getting a loan approved, or borrowing more, you should check your credit score in advance, minimise your spending in the months before applying for a loan and pay down any outstanding credit card or personal loan debts.
Read our essential tips on how to increase your borrowing capacity
"To improve borrowing power, focus on reducing existing debts, particularly credit card balances to limits, as lenders assess your ability to service loans not on the amount you owe. Consider cancelling unused credit cards and avoid accumulating new debt. It's also advisable to start saving consistently, demonstrating to lenders your capability to manage future mortgage repayments. If possible, aim to save an amount equivalent to your anticipated mortgage payment to show financial discipline. Reducing discretionary spending, such as cutting back on non-essential purchases like dining out, can also enhance your financial profile. Lastly, be cautious with large cash withdrawals, as these are seen as red flags by lenders who prefer to see traceable transactions to ensure financial transparency."
Sometimes a lender will let you borrow much more than you feel you can comfortably repay. In some cases, a lender's estimate may be on the low side, and you might be disappointed by the maximum amount available to you.
Either way, you need to know how much you can borrow without straining your ability to repay the loan. To do this, answer the following questions:
Buying a home comes with so many costs that can eat into your deposit. If you don't factor these in before applying for a loan you might find your borrowing power gets much smaller.
As a rough rule of thumb, you don't want to spend more than 30% of your income on mortgage repayments.
According to Finder research, 2 in 5 Australians are spending more than 30% of their income to pay their mortgage repayments. Shockingly, 23% are spending more than 50% of their salary.
So a very quick way to work out what you can afford to borrow is to:
Here are some quick examples:
If you're a first home buyer currently renting, you can test how much you can afford to borrow using your rent as a rough commitment.
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