Enter your income and expenses to get an estimate on how much you may be able to borrow for a home loan.
How much money can I borrow for a home loan?
If you're in the market for a new home, our Home Loan Borrowing Power Calculator takes the guesswork out of how much you can borrow. Using your current income and existing financial obligations as a guide, you can get a quick estimate of how much you can borrow and what your monthly repayments might be in today's home loan market.
The results from this calculator are meant to be an estimate only. Be sure to contact your financial adviser for advice if you're considering taking out a new loan.
How much should I borrow for a home loan?
You may have used our calculator or gone to a bank and found out the amount they are willing to lend is much higher than you thought. So, should you borrow at the top of your capacity?
While the bank might be willing to lend you this amount, you have to question if it’s worthwhile. In this case it’s worthwhile also looking at our mortgage repayment calculator to find out how much the mortgage eats into your budget.
If your mortgage is more than 30% of your income, this is generally the marker for mortgage stress. This means you might have to tighten the belt in other areas.
Banks also factor what’s called the serviceability buffer, which currently stands at 3%. This means if your mortgage rate is 5%, you’ll be assessed on your ability to repay at 8%. This is to ‘stress test’ your finances and help budget for any future rate rises or changes in financial circumstances.
What to do if your borrowing power isn’t high enough
If you’ve used our calculator or applied for pre-approval at a lender and thought, Wow it’s not high enough, then there’s a few things you could do.
Reduce your expenses
Up to 80% of banks in Australia apply what’s called the Household Expenditure Measure, or HEM, to assess your finances and ability to repay a home loan. They are also obligated under responsible lending laws to assess your expenses on your bank statements and so on.
The banks will use the higher of either HEM or your expenses into your home loan borrowing power. If your expenses are higher than your HEM, then look at ways at getting them down.
While the odd takeaway likely won’t make much of a difference, things like getting the best value on your utility bills, phone plan, and other loans will likely add up.
Increase your income
Is there a way you and/or your buying partner could increase your income? Whether that’s through a second job/side hustle, or one person returning to work even on a part time basis.
Increasing your income will likely not only increase your borrowing capacity, but increase your ability to comfortably afford the mortgage payments as well.
Choose a different property
It’s no use shopping around for champagne tastes on a beer budget. While everyone wants a $3 million home on the beach, the reality is not everyone can afford that - especially first home buyers. You may have to delay your dreams until later when you’re further in your career, or built up equity.
Find a guarantor
A guarantor is someone who backs your home loan in case you default. Most of the time this is a trusted family member who is in a solid financial position.
Guarantor home loans are usually for first home buyers who can’t afford a 20% deposit and don’t want to pay lenders mortgage insurance, but it may also increase your borrowing capacity.
You’ll have to be careful, however, because if you bite off more than you can chew, your guarantor will be on the hook for your mortgage. If they’re a family member, Christmas parties could get a bit awkward.
Go to another bank or lender
Not all lenders operate in the same way. Some banks might be more generous than others when it comes to your borrowing capacity. It’s worthwhile considering a range of different banks and non-bank lenders when shopping for a home loan.
Be wary of formally applying for - and getting rejected from - too many home loans though, because it could reflect poorly on your credit report.
Does having a baby impact my borrowing power?
The short answer is yes, it absolutely does. Raising a child will quite frankly be one of the most expensive endeavours you’ll undertake in your lifetime. If you’re expecting a baby, there’s no use trying to hide it from your lender.
Every stage of childhood comes with it different expenses. When expecting a baby, there’s all upfront expenses you might expect - pram, clothes, accessories and so on - but the expenses continue. Childcare is also a huge expense, and school costs add up as well.
