What factors affect your borrowing capacity?

January 15, 2015
Rob Lees

If you are thinking of buying a home soon one of the first things you may like to work out is how much you can borrow. By having an idea of what you can borrow, you can adjust your property search so that you only look at dwellings that are in your price range. So how can you determine what your borrowing capacity is and what factors will affect how much you can borrow?

There are seven factors that affect how much you can borrow:

  • Your income and commitments

  • Your lifestyle/living expenses

  • Your credit history

  • Your property deposit

  • The type, term and interest rate of your home loan

  • Your assets

  • The value of your property

Your income & commitments

Before a lender will give you a home loan, they will want to assess how much you can afford in mortgage repayments. They will need to look at your income as well as any outstanding debts and other commitments you have. As such, if you are buying a property with another person your repayment capacity may be greater, which would mean greater borrowing power. In addition to looking at your income, you lender will also review your current commitments, which includes all of your outstanding debt, credit and store cards, personal loans, car finance and any other ongoing financial commitments you may have.

Your lifestyle/living expenses

When working out your borrowing capacity, a lender will also look at your living expenses – things like school fees, child care fees etc all have to be taken into account. Once a lender has identified how much you can borrow, it is a good idea to work out what your living expenses are and make sure you can meet your mortgage repayments while still retaining a good standard of living


Credit history

Your credit history will play a big role in determining what your borrowing capacity is. If you can prove you are a reliable customer who meets their financial obligations on time, you may be able to borrow a higher amount. Of course, if you have missed a few bills or credit card payments in the past, this may work against you when you are trying to obtain finance.

Before seeing a lender, it is a good idea to get a copy of your credit history and see if there are any red flags or problems you can address before you start looking for finance. You can obtain a report of your credit history from Veda Advantage.

Property deposit

The more money you have in savings and can thus contribute to your property deposit, the easier it will be to obtain finance and increase your borrowing capacity. Lenders like to see that you are able to save money over a period of time – otherwise referred to as “genuine savings”.

Home loan type, term and interest rate:

The amount you can borrow may also depend on the interest rate and the term of your home loan. The lower the interest rate, the lower your repayments will be. A longer-term home loan will mean lower repayments, but a shorter-term loan may save you interest. You need to think carefully about what is most important to you.


 Your lender will want to know what you have in the way of assets before they determine how much you can borrow. Having assets like a vehicle, an investment property or shares can significantly influence a lender’s decision.

Value of the property

Finally, once you have found the property you would like to purchase, how much a lender will lend to you will depend on what the property is worth. The lender will find out how much a property is worth by conducting a valuation of the property. That valuation will then determine exactly how much they can and will lend to you. A mortgage broker can help you work out what your borrowing capacity is, so why not speak to us at Mortgage Choice Blaxland and Penrith today. Phone Mortgage Choice Blaxland on 4739 9749 or email Rob Lees at rob.lees@mortgagechoice.com.au

Posted in: Home loans

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