What impacts your capacity to borrow?

July 25, 2016
Grace Cumbers

Working out how much you can borrow should be one of the top few things to do when you are looking into buying a home. This allows you to adjust your property search so that you are only looking at places that are within your price range, therefore saving time and effort.
So how can you determine what your borrowing capacity is and what factors will affect how much you can borrow? Here are the top 7 factors lenders will consider:

Your income and commitments
Before your lender will give you a home loan, they will need to calculate how much you can afford in mortgage repayments. They will consider any outstanding debts, and financial commitments, as well as your income. If you are buying a property with a partner, repayment capacity may become higher, meaning your borrowing power could become greater. Lenders will look at not only your income, but all other current financial commitments such as car finance, credit cards, outstanding debt, personal loans and so on.

Your credit history
When trying to obtain finance, your credit history will be something that plays a big role in determining your borrowing capacity. Being able to prove on paper you are a reliable customer who meets their financial obligations in a timely manner will stand for a lot, and may increase your borrowing capacity. Of course missed bills and credit card payments can work against you, so it’s a good idea to take a look at your past credit history and address any issues before requesting finance. You can get a credit history report from Veda Advantage.

Your property deposit
The more money you have in savings to contribute to the property deposit, the easier it will be to receive finance and maximise your borrowing capacity. Being able to save money over a period of time is something that lenders like to see.

Lifestyle and living expenses
Lenders will take into account your living expenses when they are working out your borrowing capacity. This includes things like child care and school fees. Once you have worked out how much you can borrow, it is important to make sure you can meet your mortgage repayments while still retaining a good standard of living.

Your assets
Owning assets such as investment property, shares or a car can significantly impact a lender’s decision. The lender will want to know what a client has in terms of assets before they determine the amount they will allow them to borrow.

The value of the property
The lender will conduct a valuation of the property you have chosen, and from there determine what they can and will lend to you.

The type, term and interest rate of your home loan
Finally, your borrowing amount may vary depending on the nature of your home loan. This includes the interest rate, at term of the loan. If the interest rate is low, the repayments will be lower too. Longer term home loans may offer lower repayments, but shorter term loans may save you money paid as interest. You will need to work out what is important and right for you.


Our brokers at Mortgage Choice Woolloomooloo will help you to determine what your borrowing capacity is, and can get in contact with a wide range of lenders offering varied products to find the most suited product for your needs. Contact us now by completing the form at the top of the page to find out more, or give us a call on 02 9358 4855

Posted in: Home loans

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