How Much Can I Borrow for a Home Loan in Australia?
If you’re saving for your first place, one of the first questions you’re likely to ask is: how much can I borrow for a home loan?
There isn’t one answer that applies to everyone. A lender will look at your income, regular expenses, debts, savings and the property you want to buy. It will also assess whether you could manage repayments if interest rates were higher.
That means the amount a lender may approve can be different from the amount that feels comfortable in your budget. Here’s what affects your borrowing capacity, how your deposit fits in and what you can do before applying.
What does borrowing capacity mean?
Borrowing capacity, sometimes called borrowing power, is an estimate of how much a lender may be willing to lend you. It isn’t a guarantee of approval or a recommendation to borrow the full amount.
Each lender has its own assessment policies. Two lenders can look at the same application and reach different results. Your final approved loan will also depend on the property, your documents and the lender’s checks.
As a starting point, you can try the Australian Government’s Moneysmart mortgage calculator. It can help you explore repayments and loan amounts, but it doesn’t assess your personal circumstances or guarantee loan eligibility.
What affects how much you can borrow?
Your income and how reliable it is
Lenders look at the income you can show and whether it’s likely to continue. This may include your salary and, depending on the lender and your circumstances, other income such as commissions, overtime or rental income.
If you’re self-employed, you may need to provide financial records to support your application. The documents required, and how different types of income are assessed, vary between lenders.
Your everyday expenses and dependants
A lender will consider your household spending and financial commitments, including the costs of supporting any dependants. Your regular expenses help show how much money may be available for loan repayments after everyday costs are covered.
Being clear about your actual spending can help you understand your budget, too. Don’t assume that cutting your expenses on paper will automatically increase your borrowing capacity: lenders assess applications using their own policies and checks.
Existing debts and credit limits
Car loans, personal loans and credit-card limits can affect how much you may be able to borrow for a home. Some lenders may consider the limit available on a credit card, not just the balance you currently owe.
Buy now, pay later commitments and HELP debt may also be considered, depending on the lender’s assessment. Before applying, make a list of your debts and regular repayments so you can discuss how they fit into the picture.
The lender’s repayment assessment
Lenders need to assess whether you could keep up with repayments if your circumstances or interest rates change. APRA, Australia’s prudential regulator, says its mortgage serviceability buffer remains at three percentage points. In other words, APRA-regulated banks generally assess new home loans at an interest rate at least three percentage points above the loan’s product rate.
That’s a lender assessment measure, not necessarily the rate you’ll pay. It’s one reason the amount you could borrow may be lower than a simple repayment calculator suggests.
A quick worked example
Say you’re looking at a $600,000 loan over 30 years and the product rate is 6% a year. The repayment on that loan is roughly $3,600 a month. If a lender assesses the same loan at 9% — the product rate plus the three percentage point buffer — the assessed repayment is closer to $4,830 a month.
That gap of about $1,200 a month is what the lender is testing for. It’s the same loan and the same property, but the assessment uses a higher rate to check you’d cope if rates rose. It’s why the figure a calculator shows you and the figure a lender arrives at can be quite different.
These numbers are a maths illustration only, not a lending estimate or a quote. Your own assessment depends on your income, expenses, debts and the lender’s policy.
How much deposit do I need for a house?
The deposit you need depends on the property price, the loan you can qualify for and the costs you’ll need to cover when buying. A deposit also affects your loan-to-value ratio, or LVR: the loan amount compared with the property’s value.
A 20% deposit is a common savings goal because it may help you avoid lenders mortgage insurance (LMI). But some buyers may be able to apply with a smaller deposit. LMI may apply when the loan is a high proportion of the property’s value, and it protects the lender rather than the borrower.
Remember to budget for costs beyond the deposit, which may include stamp duty, conveyancing and inspections. These costs vary depending on where you buy and your circumstances. You can read more in Moneysmart’s guide to saving for a house deposit.
Could a guarantor home loan in Australia help?
A guarantor may be able to support a home loan by offering security, often through equity in their own property. Depending on the lender and the details of the application, this may help some buyers who have a smaller deposit.
A guarantor arrangement is a serious financial commitment. If the borrower can’t meet their obligations, the guarantor may be responsible under the guarantee. It’s important for everyone involved to understand the risks, the terms and what happens if circumstances change.
A guarantor doesn’t remove the need for a lender to assess whether you can afford the repayments. For more information, see Moneysmart’s guide to going guarantor on a loan.
What about a first home buyer loan?
There’s no single loan that suits every first-home buyer. You may come across different loan options, lender policies and government support programs, but eligibility rules and conditions can vary.
A first home buyer loan still needs to meet the lender’s assessment. A smaller deposit or available support won’t automatically mean a higher borrowing capacity or approval. Check the current rules for any scheme you’re considering, and include your full purchase costs in your budget.
Borrowing capacity isn’t the same as affordability
It can be tempting to focus on the biggest loan a lender might offer. But the right home loan should also leave room for the life you want to live.
Before you settle on a budget, think about ongoing costs such as council rates, insurance, utilities, repairs and maintenance. Consider how repayments would fit if your income changed, household expenses increased or interest rates rose. Moneysmart’s guide to buying a house recommends thinking about what you can comfortably afford, not just what a lender may be prepared to lend.
A useful next step is to make a household budget and test different loan repayments. Look at how much breathing room you’d have after essentials and savings, not only whether you can meet the repayment on paper.
How can you get a clearer estimate?
Before speaking with a lender or broker, gather information about:
- Your income and employment, including documents that support it
- Regular household expenses and any dependants
- Home, car, personal or other debts
- Credit-card limits, HELP debt and buy now, pay later commitments
- Your deposit, savings and likely buying costs
- The property price range you’re considering
A calculator can offer a rough starting point, but a tailored assessment is more useful when it includes your actual circumstances. Pre-approval can help you understand a possible price range, but it’s conditional and isn’t a guarantee of final approval. The lender will still assess your application and the property.
How a mortgage broker can help
A broker can help you understand what lenders may consider, compare options and identify which lending policies could suit your situation. The aim isn’t simply to chase the largest possible loan: it’s to find an option that fits your needs and budget.
Synergy Money is a Sydney-based mortgage broker working with more than 60 lenders, including major banks and other lenders. We help clients Australia-wide with residential property loans and can talk through your borrowing capacity, deposit and next steps in plain English.
If you’re ready to explore your options, book an initial discovery call with Synergy Money. A conversation can help you work out what information to prepare and what questions to ask before you start house hunting.
Frequently asked questions
How much can I borrow on a single income?
Single applicants are assessed on the same things as couples: income, expenses, debts and deposit. A single income isn’t a barrier in itself, but a second income usually means a higher borrowing capacity because there’s more money coming in to cover the same household costs.
Does a bigger deposit mean I can borrow more?
Not automatically. A bigger deposit lowers your loan-to-value ratio, which can reduce or remove lenders mortgage insurance and may open up more lender options. But the loan itself still needs to pass the lender’s serviceability assessment based on your income and commitments.
Will my credit card limit reduce my borrowing power?
It often can. Many lenders assess the full limit on your card, not just the amount you owe, because the whole limit is credit you could access. Lowering a limit you don’t use is one of the simplest things to check before applying.
How long does pre-approval last?
It varies by lender, but pre-approval is commonly valid for around three months. It’s conditional, so your circumstances and the property still need to check out before final approval.
Can a guarantor help me borrow more?
A guarantor may help in specific situations, usually where a buyer has a smaller deposit or is close to a lender’s limit. It doesn’t replace the lender’s affordability assessment, and it carries real risk for the guarantor, so it’s worth talking through carefully.
How much can I borrow with a 5% deposit?
Some lenders do accept deposits around 5%, though lenders mortgage insurance usually applies and fewer lenders offer it. The borrowing amount still comes back to your income and commitments, so the deposit changes your options more than your capacity.
This article provides general information only and isn’t personal financial or credit advice. Your borrowing capacity and loan eligibility depend on your individual circumstances and lender assessment.