Mental Calculation on Borrowing Power for Home Loans

When queried on borrowing power and the borrowing power tools are not available, I use the following mental calculation:

  • Up to 6 times of salary can be lent for owner occupied purchase*
  • Up to 8 times of salary can be lent for investment purchase
  • Every $10,000 credit card limit reduces borrowing power by 3 times i.e. $30,000.
  • Each offspring reduces borrowing power by $40,000
  • Every $1,000/month in financial commitments including car loan / Hecs / personal loan reduces borrowing power by 120 times the repayment amount i.e. $120,000

The above is a good estimate on borrowing power for first home buyers or individuals with one property. It is unsuitable for the self-employed or professional investors.

RT *

A person on $100,000 salary excluding superannuation and before tax can borrow up to $600,000.

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