Your home loan borrowing capacity will depend on a range of factors which will be assessed by your lender including;
- Deposit - the larger your deposit, the more you can borrow and the less interest you’ll have to pay on your loan.
- Income – this is not just how much your household brings in, but how much is left for home loan repayments after the bills and day-to-day expenses are paid.
- Level of debt – how much you owe on other loans and credit cards will also influence your available income.
- Savings history – having a savings history of at least 3 months demonstrates to a lender that you’ll be able to manage your home loan repayments.
- Credit rating – a sound credit rating is one of the first things lenders look at, as it is based on your borrowing and repayment history.
- Home loan term – a lender will look more favourably at a longer loan term, but remember it will mean you pay more interest over the life of the loan.
- Property value - a lender may conduct a valuation of your chosen property to determine the amount they are willing to lend you.
Every lender has a different formula for calculating your borrowing power. But whatever figure they arrive at, it’s important to be comfortable with the amount yourself.
Take an honest look at your situation, both now and in the foreseeable future and decide how much you should borrow, rather than how much you can borrow for a home loan.