How Much Can I Borrow for My Home Loan?

Helpful tip:

Often home loan customers are surprised by how much they can actually borrow. This article will help you to learn more about your options, regardless of your circumstances.

Debbie Shankar

Group Content Manager, Lendi

What difference does my deposit amount make to my borrowing capacity? 

You probably know that the higher your deposit, the less you’ll need to borrow. But there a few ins and outs to this that are worth keeping in mind. 

First, the whole calculation between price, loan amount and deposit is known in the biz as loan-to-value ratio (LVR). Your LVR is the proportion of the property value you need to borrow. That means if your LVR is, say, 80%, your deposit amount is 20% of the property value.¹Moneysmart.gov.au – Save for a house deposit 

If your LVR is more than 80% (i.e., if your deposit is less than 20%), it can mean you have to pay lenders’ mortgage insurance.²Moneysmart.gov.au – Lenders’ mortgage insurance This is usually paid as a one-off fee to the lender to protect them against the risk of you defaulting on the mortgage.³As above 

If 20% of the property value sounds like an astronomical amount to save, don’t despair just yet. If you’re an eligible first home buyer, there’s a government scheme called the First Home Guarantee designed to give you a bit more wiggle room.⁴Housing Australia – First Home Guarantee  Under the scheme, your deposit can be as low as 5% and you don’t have to pay lenders’ mortgage insurance.⁵As above 

But if you are able to save a deposit that’s at least 20% of the property value, there’s another reason it’s worth doing: it could potentially lower your interest rates. The higher your deposit and the lower your LVR, the more appealing you are to lenders, meaning it could be possible to receive a lower rate.⁶Lendi – How to negotiate a lower interest rate on your home loan 

How does my credit score affect the loan I can get? 

Basically, the higher your credit score, the more appealing you are to lenders. If your credit score is fantastic, it might get you a better deal on your loan.⁷Moneysmart.gov.au – Credit scores and credit reports And, unfortunately, if your credit score is low because of factors like debts more than 14 days overdue, it could mean you’ll have trouble getting a loan.⁸Moneysmart.gov.au – Loan rejection 

So what actually is a credit score? 

• Your credit report is a summary of your financial history, from how reliable you are in terms of paying bills, to whether you pay off your credit card every month.⁹Moneysmart.gov.au – Credit scores and credit reports 
• Your credit score is a number, based on the information in your credit report, that’s meant to show your ability to repay a loan.¹⁰Office of the Australian Information Commissioner – Credit reporting terms  Depending on the credit reporting agency, it’ll be somewhere between 0 and either 1,000 or 1,200.¹¹Moneysmart.gov.au – Credit scores and credit reports 
• Your credit rating is a simpler way of describing your credit score. Depending on the number, your credit score will fall into a particular tier, like ‘fair’, ‘good’ or ‘excellent’. Your credit rating comes with your credit report.¹²As above 

What can I do to improve my credit score? 

Did your credit report contain an unpleasant surprise? Ugh, that’s the worst, we’re sorry.  There are a few simple steps you can take to help improve it:  

• make sure to pay your rent, utility bills and credit card bills on time 
• lower your credit card limit 
• limit the number of applications you make for credit.¹³Moneysmart.gov.au – Credit repair 

Do lenders look at my spending habits?  

While it might make you a bit squeamish, it’s unfortunately true – lenders will examine your bank statements pretty closely to assess whether they think your spending habits will allow you to make the repayments. They can evaluate things like school fees and even streaming service subscriptions, and if they think you’re spending too much, they can ask you to make changes.¹⁴Australian Securities and Investments Commission – RG 209 Credit licensing: Responsible lending conduct, p19 So might be time to cut back on Afterpay and Uber Eats!  

An effective way to make sure your spending isn’t an issue for lenders is to show them that you can also save. If you can spend less than you earn in the months before you apply for a mortgage, that will give the lender confidence that you can manage a loan.¹⁵Lendi – Buying a property? How to be the ideal borrower and get approved for a home loan 

How much can I borrow safely for a Home Loan? 

Owning your own home seems like a great prospect. Your circumstances changing and your loan becoming too much for you – not so great. Before you commit to a loan, it’s worth thinking carefully about your current financial situation and how it might change. To figure out how much you can borrow safely, here are some considerations to keep in mind: 

• What loan amount would put you in mortgage stress? A household is generally considered to be under mortgage stress if they’re spending more than 30% of their combined income on mortgage repayments.¹⁶Australian Institute of Health and Welfare – Glossary   Everyone plans their budget differently, but this could be a useful calculation to keep in mind to see if you’re stretching yourself thin. 
• How might your circumstances change in the future? Planning for a mortgage can be a funny kind of thought experiment – who knows where you’ll be in 20 or 30 years?! But it’s worth thinking through some contingencies, like potential job changes or kids, and how they could change your financial situation.¹⁷ABC Everyday – How much to borrow for a home if you want to avoid financial stress 
• Do you have a buffer for interest rate rises? We can never be sure what future interest rates are going to look like, so it’s not a bad idea to plan for the worst while hoping for the best. You might want to calculate what your repayment amounts would be if interest rates were a few percentage points higher than the current rate.¹⁸Bank of Queensland – Navigating Interest Rate Rises  If you can still afford the higher amount, good news. If it’s looking like a stretch, it could mean a lower loan amount is safer. 

Where can I compare Home Loans? 

Now that you have a better sense of what you can borrow, feeling ready to look at some actual Home Loans? You’re in luck! We’ve partnered with Lendi*, Australia’s #1 online home loan platform, to help Aussies compare home loans and apply online. Compare a variety of home loans online and find a great home loan for you.