How to increase your borrowing capacity

While you should never borrow more on a home loan than you can comfortably repay, there are some sensible steps you can take to increase your borrowing capacity.

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What happens if you've found the perfect property, looked at the price, checked your borrowing capacity and realised you're coming up short? Don't despair. You might be able to increase your borrowing capacity to get you over the line.

While you should never stretch your budget beyond what you can realistically afford, there are a few ways to strengthen your position and make it easier to borrow a little more.

Save a bigger deposit

It seems obvious but we can't say it enough: saving a bigger deposit makes it easier to boost your borrowing capacity.

Get a clear idea of your property price range and then work out what a 20% deposit looks like. If possible, saving this much will make it easier to borrow the rest.

Here's the difference between a 10% deposit and a 20% deposit and the loan amounts you'll need with a $600,000 property.

Property price10% deposit20% deposit
Property price$600,000$600,000
Deposit$60,000$120,000
Loan amount$540,000$480,000

That's quite a difference. Let's try the same thing with a $700,000 property.

Property price10% deposit20% deposit
10% deposit$70,000$140,000
Loan amount$630,000$560,000

Having a larger deposit means a lender will look more favourably on your application and increases the chances of getting the loan approved.

Now of course, simply saving a bigger deposit is easier said than done and certainly not realistic for every borrower.

But there are many other ways to boost your borrowing power.

Learn how to save up a bigger deposit

Spend less, save more

While you might not be able to magically increase your salary, spending is something you do have more control over.

And again, it's a basic but vital fact: every dollar you avoid spending is a dollar you save.

Look at your bank accounts and work out how much you spend every month. Focus on the most recent months because that's what your lender will do.

When determining your borrowing capacity, lenders look at spending across a variety of categories including utilities, groceries, transportation, health, entertainment and eating out.

Draw up a budget with these categories and try to identify four things:

  • Regular expenses you can cut back on
  • Regular expenses you can cut out completely
  • Regular expenses you can't avoid
  • One-off expenses that won't arise every month

Your goal is to find out ways to cut back on things you spend too much on or things you don't need to buy at all.

Be realistic, be ruthless.

And with one-off expenses it's a good idea to keep a receipt and be able to prove to a lender that these items are one-off only. Buying a $500 heater is a big cost but if you can demonstrate where the money went it looks much better than spending $300 every month on junk food. You're not likely to buy a new heater every month.

Make sure you cut back on spending in the months leading up to your home loan application. Your lender will look at up to six months' of your spending. So living like a hermit on a diet of bread and water for just one month won't be enough.

You're better off trimming your spend realistically and sticking to a budget for a few months before applying.

Here's a quick example of a monthly budget before and after a ruthless cost-cutting exercise and switching to cheaper products (using costs and products from Finder's database).

Expense categoryCurrent costCheaper optionSavings
Home & contents insuranceCurrent monthly premium: $195New monthly premium: $89$106
Car insuranceCurrent monthly cost: $109.64
(comprehensive)
New monthly cost: $32.36
(comprehensive)
$77.28
PhoneNew smartphone contract plan: $95.74Cheapest prepaid SIM only plan: $28.40

(keep your old phone)

$67.34
EnergyMost expensive plan: $413 per quarterCheapest plan: $294 per quarter$39
BroadbandUnlimited high-speed NBN plan: $69.99 per monthUnlimited lower speed NBN plan: $49.90 per month$20.09
Digital subscriptionsNetflix (standard): $13.99

Disney+: $8.99

Spotify (premium): $11.99

Netflix (basic): $9.99

Cancel Disney+: $0

Spotify (free): $0

$24.98
Food & groceriesEating out: $200

Food delivery: $200

Eating at home: $200$200
AlcoholMonthly alcohol spending: $300Drinking less: $150$150
Total monthly savings$684.69

Cutting back and switching to cheaper products could save you hundreds of dollars a month and help increase your borrowing capacity.

Get more money saving tips here

Repay those debts

The more outstanding debt you have the less you can borrow for a home loan. It sounds obvious but again it needs to be said: shrink your debts, boost your borrowing power.

Simple. Well, not quite. Not all debts are equally urgent.

Focus on paying off high interest, urgent debt such as credit card or personal loan debts. Consider switching to a balance transfer credit card or a debt consolidation loan if it makes more sense for you.

HECS/HELP debt from tertiary education is much less urgent because you're not charged interest. It might diminish your borrowing power slightly, but you're likely better off focusing on any urgent debts, or using extra cash for your deposit rather than immediately dealing with this debt.

Other tips to boost your borrowing capacity

Andrew Mirams is the managing director of Intuitive Finance and is a qualified mortgage advisor who holds dual diplomas in Financial Planning (Financial Services) and Banking and Finance (Mortgage Broking).

Andrew Mirams is the managing director of Intuitive Finance and has around three decades of experience in the mortgage industry. He shares a few insider tips to help you improve your borrowing capacity, as well as your chances of being approved for your chosen loan.

Document your finances. This should include all incomings and outgoings, so you can provide a thorough assessment of your regular living expenses. This is particularly important for self-employed borrowers, who can be faced with a tougher loan serviceability assessment.

Reduce your credit card limits. Many borrowers don't understand that it's the total limits of your credit cards that are counted in serviceability calculations, not just the outstanding balance, so consider cancelling some of them if you can, or at least lowering the limits. Reducing the limits on your credit cards can have a positive impact on your borrowing power.

Compare home loans. One of the easiest ways to improve your borrowing capacity is to shop around for a cheaper interest rate, because that boosts the amount of principal you can borrow. Consider a number of different options and perhaps look for a mortgage broker that specialises in your situation, such as a low-deposit or low-doc home loan.

Make sure you have all the paperwork you need

The more accurate information you can provide your lender the better your chances of increasing your borrowing capacity.

Every lender's application system is different. But generally you will need:

  • Documents to verify your identity.
  • Up to six months of bank statements detail your saving and spending.
  • A letter from your employer verifying your employment. Not every lender asks for this. Regular PAYG income in your bank account is often enough.
  • A history of genuine savings. This means you can't just "borrow" $50,000 from your parents to pad out your account to make your balance look better. Money needs to be sitting in your account for 3-6 months prior to your application to count as genuine savings.
  • Information about your assets. If you have other assets such as shares or investments then make sure you can verify them. This will potentially boost your borrowing capacity too.

Read our guide on organising your home loan application

Check your borrowing capacity with multiple lenders

Every lender calculates your borrowing power according to their own formula. You'll never get the exact same figure with each lender. So look at multiple lenders and try to use their borrowing power calculators. Keep in mind that these are always estimates only.

To give you a sense of how your borrowing power differs with each lender here are four examples taken from actual lender websites. For each example all expense details are identical:

  • Number of borrowers: 2
  • Number of dependents: 0
  • Purchase: Home (not investment)
  • Combined income (pre-tax): $140,0000
  • Total credit card limit: $1,000
  • Expenses (monthly): $4,300

And here are the results:

  • Bank 1: You can borrow up to $857,000
  • Bank 2: You can borrow up to $716,000
  • Bank 3: You can borrow up to $642,200
  • Bank 4: You can borrow up to $830,000

Even based on this random sample (we looked at two Big Four banks and two smaller lenders) the difference in borrowing capacity is as much as $214,800. That's huge.

Compare widely, but apply once

Don't apply with multiple lenders! Just do some research and estimate your borrowing power. You can even try and get mortgage pre-approval from lenders (this gives you a rough but useful estimate of how much a lender will give you).

But you should only aim to submit one application for the lender you actually wish to go with. Multiple credit applications and rejections look bad on your credit score and can lead to failed applications or a diminished borrowing capacity.

Talk to a broker

If you're serious about borrowing more than your current capacity then talk to a mortgage broker.

One of the key benefits of a broker is that they can help you organise your application and help you find lenders that will accept your application. Your broker will have a pretty good sense of your realistic borrowing capacity (once you go through your finances with them) and can match you to a suitable lender.

You can do this on your own, of course. But a broker can often make it easier and give you a slight edge when you're trying to borrow a little bit more.

Be realistic

Ultimately you should know your financial situation better than anyone. This means regardless of what a lender says your borrowing capacity is you need to know what you can and can't afford to repay.

Borrowing more than you can afford is a pretty disastrous decision. Look at your income and expenses, property prices for places you're interested in, and set a realistic borrowing limit.

And be sure to factor in rate rises. Interest rates do rise, and when they do your repayments will go up. Here's a quick example if you borrow $500,000 and your rate jumps from 2.80% to 3.80%.

  • Loan amount: $500,000
  • Loan term: 30 years
  • Rate: 2.80%
  • Monthly repayment: $2,054
  • Loan amount: $500,000
  • Loan term: 30 years
  • Rate: 3.80%
  • Monthly repayment: $2,329

That rate rise will cost you an extra $275 a month, or $3,300 a year.

Need more help? You can compare loans in the table below or get in touch with an expert mortgage broker. If you have a question you can also drop in the comment box at the bottom of the page and we'll do our best to answer it.

Check out home loans from across the market

$
years
Name Product Interest Rate (p.a.) Comp. Rate (p.a.) Fees Monthly Payment

loans.com.au Green Home Loan P&IHome≥ 10% Deposit

loans.com.au Green Home Loan
2.08%
2.36%
  • App: $0
  • Ongoing: $0 p.a.
$561.57
Buying an energy-efficient home to live in? Get a discounted rate and borrow up to 90%.

UBank UHomeLoan Fixed P&IHome 3Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
1.95%
2.27%
  • App: $0
  • Ongoing: $0 p.a.
$551.82
A competitive fixed rate loan with no ongoing fees. Requires a 20% deposit.

HSBC Fixed Rate Home Loan Package P&IHome 2Y Fixed≥ 20% Deposit

HSBC Fixed Rate Home Loan Package
1.88%
2.86%
  • App: $0
  • Ongoing: $390 p.a.
$546.6
$3,288 refinance cashback offer
Lock in a low fixed rate for 2 years and buy your home with a 20% deposit. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.

UBank UHomeLoan Fixed P&IHome 1Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
1.79%
2.32%
  • App: $0
  • Ongoing: $0 p.a.
$539.94
Fix your mortgage for 1 year with a very competitive rate and no ongoing fees.

St.George Fixed Rate Advantage Package P&IHome 2Y Fixed≥ 20% Deposit

St.George Fixed Rate Advantage Package
1.94%
3.40%
  • App: $0
  • Ongoing: $395 p.a.
$551.07
$3,000 refinance cashback
Borrowers with 20% deposits or equity can get this competitive fixed rate loan. Refinancers borrowing $250,000 or more can get a $3,000 cashback (Other terms, conditions and exclusions apply). Refinancers Only.