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  • Writer's pictureReal Finance

How to determine borrowing capacity

Updated: May 19, 2022

Factors to help you understand how mortgage lenders determine your borrowing power when buying a house

If you’re looking to access finance to buy property, you’ll first need to determine your borrowing capacity. Working with a qualified mortgage specialist is suggested when you’re trying to acquire finance as they can help you determine this.

What is a borrowing capacity?

Also referred to as borrowing power, borrowing capacity is the estimated value you can borrow when buying a house. Lenders will determine this factor when you’re applying for finance. Different lenders have different considerations for borrowing capacity dependant on their eligibility criteria and their product offerings.

As there are a vast range of lenders and loan products on the market (which can often be confusing to navigate) this is where a mortgage/ finance specialist can be useful.

What factors influence borrowing capacity?

As mentioned, this’ll be dependent on several factors which can vary from lender-to-lender. Generally, these will be the main factors your finance specialist will work with you on to find the most suitable lender and borrowing capacity for you when applying got a home loan.

Starting factors

To begin with, banks may consider the following information important.

  • How many dependants you have

  • Whether you’re buying a house to live in or make a residential investment

  • Where you’re looking to buy

How many people are included in the loan?

Lenders will need to establish whether the loan will be held by a single individual or dual income earners. With two income earners, lenders may be willing to lend more if there’s more income being generated within your household.

When determining your borrowing capacity for a home loan, lenders need to review your income
When determining your borrowing capacity for a home loan, lenders need to review your income


When establishing how much you can afford to borrow, lenders will need to understand your total income. This will include your annual income before tax and any other annual income (i.e., rental income, commissions, bonuses, overtime, government benefits, etc.).


Banks will then need to look at your total expenses. This will include:

  • Bills and living expenses

  • Other lending repayments (properties, personal car loans, etc.); if you have any

  • Credit card limits

  • Other commitments

Credit history

Your credit score/ credit health can play a significant role in your borrowing capacity. Lenders may be willing to lend you more if you can prove that you’re able to meet repayments on time.

That's why it’s important to maintain a healthy credit score. To learn more about this, we suggest that you read this prior article we wrote on whether your credit score can impact your ability to acquire a home loan.

Your deposit

The size that you’re willing to contribute towards a deposit is another aspect that banks like to look at. The higher the deposit that you’re willing to contribute towards a property proves to the bank that you can save. Thus, they may allow you to access more, dependant on this.

If you have another property and wish to use some of the equity from that as a deposit, banks like to know.

Other assets

If you own other assets such as another residential property, vehicle, share portfolio etc., banks may look favourably upon this. The nature of being able to have such assets may show that you’re able to save and invest money.

The value of the property

When you buy property, mortgage lenders need to know the value of it. They’ll also do their own valuation of the property and how much they deem it’s worth before deciding on what they’re willing to lend you.

Other loan considerations

As lenders offer different loan products, they'll need you to look a the following factors before deciding your borrowing capacity:

  • Loan term and how long it'll take you to meet full repayments

  • Type of loan (fixed/ variable) and the value of the rate

  • How often you’ll make repayments towards the full loan.

A finance specialist is helpful in assisting you with navigating such matters. They deal with dozens of lenders and hundreds of loan products at once and are up to date with criteria requirements.

Helping you navigate your borrowing capacity

There are a great number of lenders who have different borrowing calculators, free to access online.

Additionally, our team of qualified finance specialists can work with you with understanding your options, in full. A bonus of working with an REIF Finance Specialist is that their service is free of charge.

To learn more about this service, please feel free to call us on 1300 130 932 to book a Financial Consultation. Additionally, click the button below to book a Financial Consultation.

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