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A guide to understanding your borrowing power

Whether you’re looking to buy your first home, upsize your existing home, or you’re on the hunt for the perfect investment opportunity, it can be hard to know where to start without a rough idea of how much you’ve got to spend. While your exact budget will be determined by your loan provider when making an application, here are some of the factors that can impact your borrowing power, so you can start your research with realistic expectations about your price range.

How much you can afford to repay

Whatever your objectives for buying property, you’ve probably already got an idea of how much wiggle room there is in your budget to meet monthly home loan repayments. Your income will play a huge role in determining your repayment capabilities, so if your income comfortably outstrips your costs of living, then this could be good news or your borrowing potential. Needless to say, if you’re buying property with a working partner, then it is likely that your borrowing capacity will be higher than if you were seeking to obtain a home loan with one income.

Your living expenses

However substantial your household income may be, it’s important to keep in mind that this will be offset against your household living expenses when it comes to working out your borrowing capacity. Naturally, these can vary significantly from one home loan applicant to another, so think carefully about the state of your current living costs. Expenses to consider might include how often you eat out, how much you spend on travel, shopping, and entertainment, and other financial commitments such as children’s school fees and supporting hobbies.

Existing debts

Your borrowing power will be limited by any other debts you might have such as credit cards,

personal loans, or car financing options, for example. Some of the ways to maximise  borrowing potential might include closing any credit cards you don’t need and refinancing or consolidating existing debts to reduce repayments through lower interest rates and better loan terms.

How much deposit you’ve saved

The more money you can contribute to a property as a deposit, the more you’ll be able to borrow. Your ability to save for a deposit will also be considered a strong indicator of your future ability to meet repayments. The amount you’ll be able to borrow will be influenced by what’s called the “loan-to-value-ratio” (LVR) which refers to the size of your deposit in relation to the value of the property you’re aiming for. Generally, you should aim for a deposit of at least 20% of the purchase price.

The size of your asset pool

The total value of your existing tangible assets can also play a role in determining your borrowing capacity. For example, your borrowing capacity may be positively impacted if you already own an investment property, have grown an investment property portfolio, or are the owner of other significant assets such as cars, motorbikes, campervans, or boats.


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