When you’re planning to buy or build a home, one of the biggest questions is: how much can I actually borrow?
Here’s a snapshot of the key factors that impact your borrowing power, plus practical tips to help you increase it.
Income and type of employment
Your income plays a major role in determining how much you can borrow. Lenders consider your salary, rental earnings, overtime, bonuses, and government benefits, along with your employment status—whether you’re full-time, part-time, casual, or self-employed. If you’re self-employed, your tax returns and business profits are especially important, so maintaining accurate and current records is essential.
Assets and liabilities
Lenders assess your assets—such as savings, investments, and superannuation—against your liabilities, including car loans, personal loans, and credit card debt. Even an unused credit card with a high limit can reduce your borrowing capacity, as banks consider it potential debt. Cutting back on unnecessary accounts or lowering credit limits can significantly improve your borrowing power.
Credit report and expenses
A spotless credit report boosts your chances, while late payments or defaults can negatively impact your application. Lenders also scrutinise your regular expenses, including groceries, childcare, subscriptions, and small indulgences. If you’ve had a one-time expense, like a holiday or a major purchase, highlighting it as a one-off can help provide a clearer and more accurate view of your spending habits.
Interest rate and loan term
Interest rates have a direct effect on how much you can borrow: when rates rise, repayments increase, usually leading to a lower loan amount approved by the bank. Opting for a longer loan term, such as 30 years instead of 25, can increase your borrowing power by reducing monthly payments, but it will result in paying more interest overall.
Small changes, big impact
Looking to boost your borrowing power? Small changes can make a big difference: close unused credit cards, organise your expenses, grow your savings, and check your credit score before applying. Also, remember to shop around—different lenders have varying borrowing limits, so doing your research or consulting a mortgage expert can really work in your favor.
