If you’re planning to buy a home in Australia, one of your first questions is likely to be: how much can I borrow for a home loan?
Your borrowing capacity, also called borrowing power, is the estimated amount a lender may be willing to lend you based on your income, expenses, existing debts and financial circumstances. The amount you can borrow depends on your situation and the lender’s assessment criteria.
An online borrowing capacity calculator can help you get an initial estimate before you start looking at properties. However, the amount you can borrow isn’t necessarily the same as the property price you can afford or the amount a lender will ultimately approve.
If you’re a first-home buyer, Approva’s guide to home loans for first home buyers can help you understand the wider home-buying process.
Here’s how borrowing capacity works, what affects your borrowing power and how to prepare for your home loan journey.
Borrowing capacity is the estimated maximum amount a lender may be willing to lend you for a home loan, based on your financial circumstances and its lending criteria. Also known as borrowing power, it helps you understand a potential loan amount before applying. It’s an estimate, not a guarantee of approval.
Your borrowing capacity is different from your total property budget. Your property budget also depends on your deposit, upfront buying costs and the repayments you can comfortably manage.
For example, someone with a certain borrowing capacity may be able to consider properties at a higher price if they have a larger deposit. However, they still need to account for stamp duty, legal fees and other costs.
It’s also important to remember that a lender’s maximum borrowing amount isn’t necessarily the right amount for your household. Your own budget, lifestyle and financial goals should help guide how much you choose to borrow.
Lenders estimate borrowing capacity by assessing how much income you have available to meet home loan repayments after accounting for your living expenses and other financial commitments. They also consider household circumstances, the proposed loan and their serviceability assessment requirements.
Here are the main factors involved.
Your income helps determine how much you may be able to repay. Depending on the lender’s policy, assessable income may include:
Lenders may assess different income sources differently. For example, variable income or income from self-employment may require additional evidence to establish its consistency. You can read more about how lenders assess your income, expenses and employment when preparing for a home loan application.
If you’re considering buying a rental property, Approva’s information about loans for property investment may also be useful.
Your regular household expenses affect how much money you have available for mortgage repayments. These may include groceries, utilities, transport, insurance, childcare, subscriptions and discretionary spending.
Providing realistic figures matters. Underestimating your expenses can give you an unrealistic idea of what you can afford.
Personal loans, car loans, existing mortgages and other financial commitments can reduce your borrowing capacity because they leave less income available for a new loan.
Lenders consider income, expenses and other financial commitments when assessing whether a borrower can afford a loan. You can read more about the factors lenders consider when assessing a loan application.
Credit card limits can also matter, even if you pay off your balance regularly or don’t currently owe anything. Lenders may consider the available credit limit when assessing your financial commitments, although their policies and assessment methods can differ.
The number of people who depend on your income can affect your borrowing capacity. Childcare, education and other household costs may also influence how much a lender considers available for repayments.
Lenders assess whether you can afford repayments under their lending criteria, not just whether you can manage the initial advertised repayment.
According to APRA’s current mortgage serviceability buffer requirements, APRA-regulated banks must apply a mortgage serviceability buffer of at least three percentage points above the loan’s interest rate, subject to applicable requirements and exceptions. This helps banks assess borrowers’ ability to manage repayments under less favourable conditions.
The rate and loan term assumed by a calculator can also affect the estimate it produces.
Your deposit helps determine how much you need to borrow to purchase a property. It also affects your loan-to-value ratio (LVR), which compares the loan amount with the property’s value.
A larger deposit may reduce the loan amount you need and could reduce the need for lenders mortgage insurance, depending on your circumstances and lender’s requirements. However, a larger deposit does not automatically mean a higher borrowing capacity.
You should also allow for the costs involved in buying a house, such as stamp duty, conveyancing, inspections and other purchase-related expenses.
Your borrowing capacity depends on more than your annual salary. Two people earning the same income may receive different estimates because of their debts, expenses, dependants, employment arrangements and the lender’s policies.
The following factors are particularly important.
This is why checking more than one lending option can be worthwhile. A result from one bank’s calculator may not match another lender’s estimate.
You can get a useful starting point by organising your financial information and entering realistic figures into a borrowing capacity calculator. The more accurate your inputs, the more useful your initial estimate is likely to be.
Follow these steps.
A calculator is a starting point, not a substitute for a full assessment of your financial position and loan eligibility.
Understanding your borrowing capacity is a useful first step towards buying a home. Use Approva’s calculator to explore your numbers and get a clearer starting point for your home loan journey.
You may be able to improve your borrowing capacity by reducing financial commitments, documenting your income accurately and reviewing your household budget. The best approach depends on your circumstances, and no single change guarantees a higher borrowing limit.
Consider these practical steps:
Don’t make financial changes solely to maximise a calculator result. Your goal should be a home loan you can manage comfortably, including if your expenses rise or your circumstances change.
No. Your borrowing capacity is the estimated loan amount, while your home-buying budget reflects the total amount you can put towards a property after considering your deposit, purchase costs and financial circumstances.
A simple starting point is:
Estimated property budget = potential loan amount + available deposit − upfront buying costs
For example, if you have an estimated loan amount and a deposit saved, you still need to set aside enough money for applicable stamp duty, conveyancing, building and pest inspections, and other expenses. Your actual budget will also depend on lender requirements and the property you purchase.
Stamp duty varies by state or territory, property value and eligibility for concessions. First-home buyers may qualify for certain exemptions or concessions, so check the relevant state or territory revenue office before finalising your figures.
You should also consider ongoing costs such as council rates, insurance, utilities and maintenance.
Most importantly, distinguish between the maximum amount a lender might let you borrow and the repayments you feel comfortable making. A lower loan may leave more room in your budget for savings, unexpected expenses and other priorities.
Knowing how much you may be able to borrow can help you plan your deposit, narrow your property search and prepare for conversations with lenders. The key is to use the estimate as a guide rather than a target you must reach.
Ready to explore your borrowing power? Use Approva’s calculator to get an initial estimate and take the next step towards understanding your home loan options.
How much you can borrow on your salary depends on your income, living expenses, existing debts, dependants, deposit and the lender’s assessment criteria. Your salary alone cannot determine your borrowing capacity. Use a calculator for an initial estimate, then discuss your circumstances with a lender or mortgage broker.
There is no single borrowing amount for someone earning $100,000 a year. The result depends on whether that figure is before tax, your other income, living costs, debts, dependants, deposit and the lender’s policies. Enter your details into a borrowing capacity calculator to explore an estimate specific to your circumstances.
A larger deposit can reduce the amount you need to borrow and improve your overall buying position. However, it doesn’t necessarily increase your borrowing capacity, which is primarily based on your ability to service the loan under the lender’s assessment criteria. Your deposit can also affect your LVR and potential mortgage insurance requirements.
Yes. Lenders may consider your credit card limits when assessing your financial commitments, even if you have a low balance or pay the card off in full. Reducing an unnecessary limit may help in some circumstances, but check the implications with your lender or broker before making changes.
Banks can use different lending policies, income assessment methods, expense benchmarks, calculator assumptions and loan products. As a result, the same applicant may receive different estimates from different lenders. A calculator result from one bank does not guarantee the amount another bank will offer.
A borrowing capacity calculator can provide a useful initial estimate when you enter accurate information. However, it may use assumptions about interest rates, loan terms and eligible income, and may not assess your full financial position. A lender’s formal assessment can produce a different result.
Paying off your mortgage early can save interest and reduce debt faster, but in today’s economy, it is not always the best move. Here is how to approach early mortgage repayment in Australia without putting pressure on your finances.
Comparing a mortgage broker vs bank? Learn the key differences, pros and cons, and how to choose the right home loan option for your situation.
Buying your first home can feel overwhelming. This guide explains how mortgage brokers for first home buyers compare lenders, structure loans, and guide you from pre-approval through to settlement so you can move forward with clarity and confidence.
A broker will be in touch shortly. Need us sooner? Call 0414 901 362.
