What affects your borrowing capacity?

What affects your borrowing capacity?

When you apply for a home loan, one of the first things a lender will calculate is your borrowing capacity. Here some some key factors in determining your borrowing capacity.

Income (Increases borrowing capacity)

• Income (this includes base salary, bonuses, overtime and/or commissions)

• Rental income (investment properties)

• Self employed income

Existing Debts & Liabilities (Reduces borrowing capacity)

• Credit cards 

• Personal or car loans

• Buy now, pay later services (e.g., Afterpay)

• HECS/HELP debt

• Other home loans or investment loans

Monthly Living Expenses (Reduces borrowing capacity)

• Groceries and dining out

• Utilities (electricity, gas, water)

• Insurance and healthcare

• Transport (fuel, public transport, car servicing)

• School fees, subscriptions, entertainment

Assessment Rate

• Lenders generally assess a home loan using a 3% buffer on your interest rate.

Dependents ((Reduces borrowing capacity)

• Children or a non-working partner. More dependents = higher monthly living expenses.

Loan Term

• Longer loan terms reduce your minimum required repayments

Your borrowing capacity is influenced by a range of factors — not just how much you earn. Lenders take a detailed look at your living expenses, debts and situation.

Understanding these components can help you plan ahead, make informed financial decisions, and avoid borrowing more than you can comfortably afford. Whether you're just starting to explore your options or actively preparing to buy, being aware of how lenders assess your situation is a valuable first step.