October 18, 2013
Working out how much you can borrow for your home loan is a critical step in purchasing your property.
- The main factors to consider are:
- Your income
- Your expenses
- How much debt you have
- How much deposit you have
Taking the time to determine each of these factors, and then making a budget, will help you find out what sort of home loan you can afford.
Then you can use any of Mortgage Choice’s home loan calculators to help you figure out how much you may be able to borrow for a home loan, and the impact that variable terms will have on the cost and affordability of different loan options.
Add together all your sources of income and that of your co-purchaser/s (if applicable). Besides your regular wage, salary, or self-employed income include any other income sources such as investments or rentals.
Make a list of all your expenses. It’s a good idea to calculate expenses on a monthly basis. Include general expenses such as power, phone, car loans, insurance, groceries, transport etc and day-to-day variable items including eating out, entertainment, shopping. Try and be precise to get a realistic picture of what you actually spend each month.
Banks and home loan lenders will need to know what existing debt commitments you have, such as car loans, credit cards and any other lending.
You may already have some funds put aside as a deposit. The amount of your deposit will affect what type of home loan you are able to secure. For example, some lenders will require you take out additional mortgage insurance if your deposit is less than 10 percent of the property value.Home loan lenders will also be interested in what significant assets you own.
Your ‘income to debt ratio’
Once you have a basic budget together, you can start to determine how much you may be able to borrow for a home loan. Our ‘How much can I afford to borrow?’ home loan calculator’ can help you with this.
A key thing that banks and lenders consider is the ratio between your income and expenses – i.e. what proportion of your income is required to cover your living expenses and commitments to any debts. This influences how much you may be able to borrow on a home loan, and how much you can afford to repay regularly.
These days, putting together a loan home package is more about tailoring a loan to suit your needs, not the banks’.
Home loan repayments and other costs
There are always plenty of variables to account for when considering home loan options.
To see how much your loan will cost you and what the monthly repayments will be, use our home loan repayments calculator.