Before looking at properties to buy, it helps to understand how much a lender may be prepared to lend you.
This is known as your borrowing capacity or borrowing power.
It is based on more than your income. Lenders consider your broader financial position, your existing commitments and whether you could continue meeting the repayments if circumstances changed.
Just as importantly, the amount a lender is prepared to offer may not be the amount you feel comfortable borrowing.
What affects your borrowing capacity?
Every lender uses its own assessment criteria, but the main factors generally include:
Your income
Lenders consider how much you earn, how regularly you receive that income and where it comes from.
This may include:
- Salary and wages
- Overtime and allowances
- Bonuses or commissions
- Business income
- Rental income
- Government payments
Not every type of income will be assessed in the same way. Some lenders may only accept a portion of irregular, bonus or rental income.
Your living expenses
Your usual household expenses affect how much income is available to repay a home loan.
These may include:
- Groceries and utilities
- Transport and vehicle costs
- Insurance
- School fees and childcare
- Medical expenses
- Entertainment and subscriptions
- Other ongoing household costs
Providing an accurate picture of your expenses is important. A loan needs to remain manageable after settlement, not simply meet the lender’s approval criteria.
The Australian Government’s Moneysmart budget planner can help you build a clearer picture of your regular income and expenses.
Your existing debts
Current debts can reduce how much you are able to borrow.
These may include:
- Credit cards
- Personal loans
- Car finance
- Buy now, pay later accounts
- HECS or HELP debt
- Existing home or investment loans
Credit card limits may also affect borrowing capacity, even when the balance is low or paid off each month.
The number of people who depend on your income
Lenders consider the number of adults and children supported by the household income.
Having dependants does not prevent you from borrowing, but it may increase the living expenses used in the lender’s assessment.
Your deposit and savings history
The size of your deposit affects your loan to value ratio, commonly known as the LVR.
Your LVR is the amount you want to borrow compared with the lender’s assessed value of the property.
A larger deposit may:
- Reduce the amount you need to borrow
- Improve your chance of approval
- Reduce your interest and other borrowing costs
- Help you avoid Lenders Mortgage Insurance
Moneysmart notes that borrowers with an LVR above 80 per cent may need to pay Lenders Mortgage Insurance (LMI) depending on the lender and loan. To learn more about LMI, click here.
The interest rate and loan term
Lenders do not assess your application using only the interest rate you will initially pay.
They also test whether you could continue meeting the repayments if rates increased or your financial circumstances became more difficult. APRA requires regulated lenders to apply a serviceability buffer when assessing new home loans.
The loan term also matters. A longer term may reduce the required monthly repayment, but it can increase the total interest paid over the life of the loan.
Why do different lenders offer different amounts?
Borrowing capacity can vary considerably between lenders.
Each lender may take a different approach to:
- Overtime and bonus income
- Self employed or business income
- Rental income
- Household expenses
- Existing debts
- Credit card limits
- Dependants
- Acceptable property types
- Interest rate buffers
This means one lender’s borrowing estimate may be different from another’s, even though your financial position has not changed.
A higher borrowing limit does not necessarily mean that lender offers the most suitable loan. The interest rate, fees, flexibility and longer term impact should also be considered.
How much deposit do I need?
A deposit of 20 per cent may help you avoid Lenders Mortgage Insurance, although you will also need to allow for costs such as stamp duty, conveyancing, inspections and loan fees.
Some borrowers may be able to purchase with a smaller deposit, subject to the lender’s criteria.
The former Home Guarantee Scheme was renamed the Australian Government 5% Deposit Scheme on 1 October 2025. Under the current scheme, eligible first home buyers may be able to purchase with a deposit as low as 5 per cent without paying Lenders Mortgage Insurance. Lender eligibility and property requirements still apply.
A parental guarantee may also be an option for some families, but it creates responsibilities and risks for everyone involved and should be considered carefully.
Borrowing capacity is not the same as affordability
A lender’s calculation tells you what may be approved.
It does not tell you what will allow you to live comfortably, manage unexpected costs or continue working towards your other goals.
Before deciding how much to borrow, consider:
- What repayments would feel manageable
- Whether your income may change
- Your plans for children, career changes or business ownership
- The cost of maintaining the property
- Whether you want room to save, invest or travel
- How you would manage an unexpected expense
- Whether higher interest rates would place pressure on your household
Moneysmart provides a mortgage calculator that can help you estimate borrowing capacity and compare potential repayments. It should be treated as a starting point rather than a loan approval.
Start with the bigger picture
The question is not simply:
How much can I borrow?
A better question is:
How much can I borrow while still supporting the life I am trying to build?
At You First, we consider your home loan alongside your cash flow, family responsibilities, business interests and longer term plans.
If you would like to understand your borrowing capacity and the home loan options available to you, start with a conversation with our team.
The information in this article was accurate at the time of publication and is intended as general information only. It does not take into account your personal objectives, financial situation or needs. Laws, regulations and lending policies may change over time, so you should seek professional advice before making financial decisions.