How Much Can I Borrow for a Home Loan?

Buying a home is one of the biggest financial decisions you’ll ever make. One of the most common questions first-time buyers and even experienced property investors ask is: How much can I borrow for a home loan in Australia? 

Knowing your borrowing capacity is crucial because it helps you set realistic expectations and plan your property purchase with confidence. From your income and expenses to interest rates and lending policies, several factors can affect your borrowing power. 

In this guide, we’ll break down what influences your loan amount, how to estimate it accurately and practical ways to boost your chances of getting approved, so you can take the next step towards owning your dream property.

What Determines How Much You Can Borrow?

The amount you can borrow for a home loan in Australia depends on several factors. Lenders assess your financial situation comprehensively to ensure that you can comfortably meet your loan repayments. Here are the key factors that impact your borrowing capacity:

Income and Employment

Your income is one of the most important factors lenders consider. This includes your salary, wages, bonuses, commissions, rental income and any other reliable sources of income. The more consistent and stable your income is, the greater your borrowing potential will be.

Lenders also look at your employment status. Full-time, permanent employees typically have a stronger borrowing capacity than casual or contract workers, though this can vary between lenders.

Expenses and Financial Commitments

Lenders will review your living expenses and existing financial obligations. This includes regular bills, groceries, insurance, loan repayments (like car loans or personal loans), credit card debts and any other financial commitments. The more expenses you have, the lower your borrowing capacity may be.

It’s important to be honest and accurate when disclosing your expenses because lenders want to ensure you’re not stretching your budget too thin.

Credit History and Credit Score

Your credit history is a record of how you’ve managed credit in the past. A good credit score indicates you’re reliable and responsible with repayments, increasing your chances of borrowing more. Conversely, a poor credit history or defaults can reduce your borrowing power or even prevent loan approval.

Deposit Amount and Loan-to-Value Ratio (LVR)

The size of your deposit plays a significant role. Lenders typically require at least 5-20% of the property price as a deposit. The loan-to-value ratio (LVR) is the amount you borrow compared to the property’s value. For example, if you have a $50,000 deposit on a $500,000 property, your LVR is 90%.

Higher deposits mean a lower LVR, which can make you eligible for better interest rates and loan terms. If your deposit is below 20%, you may need to pay lenders mortgage insurance (LMI), which protects the lender if you default on your loan.

Interest Rates and Loan Terms

The interest rate on your loan affects your repayment amounts and overall borrowing capacity. Lower interest rates mean lower repayments and a higher amount you can borrow.

Loan terms, such as the length of the loan (typically 25-30 years), also influence borrowing power. Longer terms usually result in smaller repayments, increasing how much you can borrow.

Other Factors

Lenders may also consider your age, residency status and whether you’re buying your first home or an investment property. First home buyers may be eligible for government grants or concessions that can affect borrowing decisions.

How to Estimate How Much You Can Borrow

Estimating your borrowing power is a useful first step in your property journey. Many lenders offer borrowing calculators online. These calculators consider your income, expenses, debts and deposits to give you an approximate borrowing limit.

Keep in mind, these calculators provide estimates only. Actual borrowing capacity depends on a detailed assessment by lenders, who apply serviceability tests and add buffers to account for potential interest rate rises or unexpected expenses.

Why Get Professional Help to Determine Your Borrowing Capacity?

While online calculators are handy, consulting a professional mortgage broker or finance specialist can make a significant difference. Richmond Residential’s experienced team understands the nuances of different lenders’ criteria, and we can guide you through options that suit your unique financial situation.

Mortgage brokers help you gather the right documentation, advise on improving your borrowing power and match you with lenders who offer the best terms for your needs. This personalised approach can save you time and increase your chances of loan approval.

Tips to Improve Your Borrowing Capacity

If you find your borrowing power isn’t as high as you hoped, there are several ways to improve it:

• Reduce Existing Debt: Paying off credit cards, personal loans or car loans lowers your monthly obligations and frees up borrowing capacity.

• Increase Your Deposit: Saving a larger deposit reduces your LVR and can make your loan application more attractive to lenders.

• Limit New Expenses: Avoid taking on new debts or making large purchases on credit while applying for a loan.

• Provide Proof of Stable Income: If you’ve recently changed jobs, showing consistent income or contracts can reassure lenders.

• Improve Your Credit Score: Check your credit report for errors and take steps to improve your credit history.

Common Misconceptions About Borrowing Power

There are a few myths around how much you can borrow:

• I can borrow up to 80% of the property value. This is not always the case. Borrowing limits depend on your overall financial situation and the location of your property, not just the property price.

• Banks approve loans based on income only. Lenders consider many factors, including expenses, debts, credit history and more.

• Low interest rates do not mean better products. The cheapest-looking option isn’t always the best. Loan features, flexibility and suitability for your circumstances matter just as much as the rate.

• Pre-approvals mean my loan is approved. A pre-approval is not a loan approval. You cannot rely on a pre-approval to sign contracts.

• Products and rates are not a one-size-fits-all. What works for one borrower may not be right for another. Lenders assess each application differently, and the best product depends on your personal and financial situation.

• Higher borrowing means better deals. Borrowing more than you can afford can lead to financial stress. It’s important to borrow within your means.

How Richmond Residential Can Help You

At Richmond Residential, we aim to make your home loan process simple and stress-free. We assess your full financial picture to provide realistic advice on how much you can borrow. Our team works with a wide panel of lenders to find competitive interest rates and flexible loan products that fit your needs. We guide you through every step, from initial assessment and pre-approval to loan settlement, ensuring you feel confident and informed throughout your property journey.

Final Thoughts

Being aware of how much you can borrow is fundamental to making informed decisions when buying property. By understanding the factors that influence borrowing capacity and seeking expert advice, you can set yourself up for success.

If you’re ready to explore your borrowing power or want personalised support with your home loan application, Richmond Residential is here to help. Contact us today and take the first step towards owning your dream home.