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Borrowing Capacity Calculator

This is a great first step to take before you contact your mortgage broker or lending institution for pre-approval.

Want to nail down how much you could potentially borrow for a home loan? Our borrowing power calculator gives you an initial estimate of what a lender may offer you. Enter your financial details to estimate how much you may be able to borrow for a home loan.

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What is borrowing power?

Not only does the borrowing power calculator take into account the effect that interest rates and loan periods have on the amount you can borrow, but it shows you the total interest you pay and your estimated monthly loan repayments.

For any prospective homebuyers, understanding your borrowing power is a crucial step to feeling more prepared so that you can go out and browse your home loan or property options with greater certainty and confidence.

Borrowing power refers to the loan threshold or limit imposed on you by lenders depending on your financial situation.

Having high borrowing power means that lending institutions will approve you for higher loan amounts because they trust that you will be able to comfortably repay it.

Understanding your borrowing capacity can be incredibly useful for anyone on their home buying journey, whether you’re a first homebuyer, property investor or even just looking to refinance.

Obtaining a ballpark figure for how much you can borrow will help you to:

  • Get an early idea of what your monthly loan repayments would look like including factors such as interest rates and applicable fees
  • Compare rates more effectively across different lenders, since you know what to expect
  • Cut down on time spent searching for properties, as you’ll waste less time considering properties outside your budget range

How is borrowing power calculated?

Borrowing power is calculated based on a number of variables that affect your financial circumstances. Contrary to popular belief, having a high and steady income stream may not necessarily result in a higher borrowing capacity, as lenders place greater emphasis on your liabilities and history.

These variables will usually entail:

  • Any ongoing financial commitments (including rent and broader spending habits)
  • Accrued debts (i.e. existing personal loans, outstanding credit card balance, etc.)
  • Your credit history (history of loan repayments, credit card repayments and overdraft limits)
  • Employment classification and status
  • Income levels
  • Deposit amount
  • Value of existing assets (property, motor vehicles or other large assets that can be secured as collateral)

The factors prioritised and taken into account may vary widely according to the lender, so remember that your borrowing capacity is more of a range than an explicit value of how much you are able to borrow.

Enter your financial details to estimate how much you may be able to borrow for a home loan.

How do I use this borrowing power calculator?

Using our borrowing power calculator is relatively straightforward.

It takes into account your preferred loan terms, as well as the following variables that are relevant to your income and outgoing expenses:

  • Joint household income
  • Number of dependent children
  • Individual net salaries
  • Other streams of net income
  • Living Expenses
  • Existing loan repayments (if any)
  • Total credit card limits
  • Other ongoing payments

All you need to do is input the relevant details and our calculator will calculate the maximum loan amount you are eligible for and break it down into monthly, fortnightly or weekly repayments for your convenience.

Things you should know

It’s essential to keep in mind that this calculation is not an offer of credit, nor does it serve as a pre-qualification for home loan approval. Your borrowing capacity may differ when you complete a full assessment or loan application since there are other contributing factors that cannot be reflected through a calculator.

The calculation is based on current lending criteria, which are subject to change at any given time. This estimate is based on the accuracy of the information provided by the user and does not take into account any additional fees associated with the loan or refinancing process. Our calculations are intended to serve as a guideline for how much you could borrow and it is advised that you seek professional advice before proceeding.

What factors do lenders consider when assessing your borrowing power?

Deposit

The amount of deposit you have available is one of the key indicators of your saving habits and is universally important to any lender. A sizable deposit will generally result in the lender approving you for a higher loan amount because they view you as a low-risk borrower.

Loan to value ratio (LVR) is a common metric used by lenders during the pre-qualification for a home loan. It is the home loan expressed as a proportion of the overall property value. This means that a larger deposit would result in a lower LVR, making you a lot more attractive to lenders and qualifying you for better rates and larger loan amounts.

Moreover, the size of your deposit doesn’t just affect your borrowing capacity, but may also prevent you from having to pay lenders mortgage insurance (LMI). Usually, a deposit upwards of 20% will allow you to bypass LMI, potentially saving you thousands on additional costs.

If you’re a first home buyer or just curious about how much deposit you should save for a home loan, Homestar Finance has you covered.

Assets

When lenders assess your home loan application, the total value of assets you own will be key to determining your ability to meet loan repayments.

Liquid assets such as savings and taxable investments, i.e. stocks, bonds or mutual funds will be held in high regard by lending institutions. Though non-liquid assets such as property or motor vehicles also show lenders that you are capable of long-term saving and could potentially serve as collateral in the event that you are unable to meet repayments.

Diversified assets are considered to be less risky and are usually a good indication of your financial management skills.

Credit limits and health

Credit history is assessed at the lender’s discretion and is one of the underlying variables that dictate how much you can borrow. It’s essentially a track record of your ability to meet bills, rent and other financial commitments on time.

If the previous factors are an indication of your ability to save, then credit history is an indication of your ability to make timely loan repayments. Credit health can be obtained for free from online credit reporting services.

You are eligible for one credit check every year or within 90 days of a rejected credit application. It is important to keep in mind that these metrics are measured differently depending on the loan provider or agency so there is no one-size-fits-all model.

Similarly, the credit limits in place on your current accounts can also play a huge role in determining your borrowing power amount. This is because banks assume that credit cards are fully drawn when assessing your financial situation.

Income

Annual income is the first factor that lenders will examine to see if you have the financial means to meet monthly repayments. They may also take into consideration the stability of your employment to see if you can continue to meet principal and interest repayments in the long term.

This is why it can be highly beneficial to lodge a joint home loan application with your spouse or partner. If you do, the lender will assess you based on a joint income application and your borrowing power may be considerably higher as a result.

Living expenses

Your monthly living expenses are just as important to your borrowing capacity as your deposit, assets, income and credit health. These expenses include any personal loan repayments or other debts outstanding under your name.

Lenders are aware that spending habits vary greatly, even among people with the same income. For instance, someone with dependent children may have ongoing financial commitments related to child care or education.

Assessing your living expenses is how lenders determine your cash flow and your ability to make home loan repayments on time.

Why is my borrowing power so low?

Low borrowing power can be a result of not meeting any of the requirements listed above.

Having debts under your name, an insufficient or low deposit, a lack of assets and a lavish lifestyle will result in a low borrowing capacity.

Lenders will be reluctant to disclose exactly how borrowing power is calculated, but carefully analysing your own financial situation should give you a rough idea of why you can’t borrow as much as you had in mind. For instance, your credit limits may be set extremely high or you may be doing irregular freelance work.

Though these specific conditions won’t make or break your borrowing potential on their own, they do add up in the long term. So get on top of the variables you have control over.

How can I increase my borrowing power?

Borrowing power isn’t fixed and a little amount of effort can go a long way to ensuring you can borrow the amount you need for your new home.

Here are some common ways that you can increase your borrowing potential in the eyes of the lender.

Savings

Having a healthy savings balance and making regular deposits signals to lenders that you are financially savvy. If you are looking to borrow from the same lending institution you bank at, they may even offer more favourable terms if they know you have a penchant for saving.

Try setting aside at least a third of your weekly income for your savings account. If you can consistently make deposits into your account it can go a long way in improving your standing with lenders.

Managing high savings relative to your income is a great indication to lenders that you are risk averse and that you have the potential to handle higher mortgage repayments.

Even the smallest deposits over a long period of time can go a long way and that’s why we’ve put together a list of 8 spending habits that will help you chase that dream home sooner.

Reducing debts and expenses

Start by reducing any unnecessary monthly living expenses such as subscription-based services, shopping or food delivery. More often than not, lenders will take a no-nonsense approach to assessing your cash flow and getting rid of any non-essential spending could go a long way.

Take care of any personal debt obligations first so that you can apply for a home loan with a blank slate. You will always be better off making repayments on any existing loans so that you can tick off your liabilities before having your finances examined by a lender.

If you’re struggling to manage your ongoing finances, take a look at our budget planner calculator so you can get a handle on exactly how much you’re spending and where you can cut down.

Improving credit health

Improving your credit rating is not an instantaneous process, but it can be done quite easily over time. Some ways to boost your creditworthiness include:

  • Paying utility or rent bills reliably and on time
  • Ensuring credit card or other personal loan repayments are never late
  • Not changing jobs or moving homes too frequently (indicates financial instability)
  • Not applying for too many credit cards (frequency and rejection of credit applications indicate financial desperation)

Since the variables that make up credit health are subjective, there are no definitive ways to improve your score. However, displaying all of the above should indicate to any credit rating agency that you are trustworthy and reliable.

Lower credit card limits

As mentioned earlier, lenders will assume that your credit limits have been maxed out when they assess your home loan application.

These limits refer to the sum of all the credit card limits and overdraft accounts under your name. That means if you have two separate credit cards with limits of $10,000 and $5,000, as well as a $6,000 overdraft available on your debit account, your credit limit would equate to $21,000.

That’s why it may be a good idea to reduce your limits as low as possible when applying for a home loan.

If you’re struggling with any one of these and need an extra hand getting your finances back on track, the National Debt Helpline is a government provided service to help individuals address their financial problems, manage debt, and make informed choices about money during times of hardship.

Check out our other home loan calculators

Working out potential home loan repayments? Looking at loan refinancing options? Just curious? Our range of calculator tools can help you make informed decisions on the best products or offerings to add value, reduce repayment stress and save money.

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    Understanding more about borrowing power

    Does the amount I could borrow differ if I'm single or part of a couple?

    Relationship status can impact your borrowing power in both negative and positive ways.

    Since lenders will take your combined income and shared debts into account this may prove advantageous when assessing your financial situation. However, the converse is also true if you have multiple dependents and too many shared assets.

    Does my ability to borrow differ if it's an owner occupied property or an investment property?

    Generally speaking, it is slightly easier to borrow for the purposes of property investment because a lender will take potential rental income into account.

    However, lenders will still assess you against your personal income and expenses because they want to ensure that you have the ability to meet mortgage repayments even if the property goes unoccupied for an extended period of time.

    If I already own an investment property, will that improve my borrowing power?

    Your investment property will definitely be taken into consideration by the lender when they assess your borrowing power.

    Whether this improves or impedes your borrowing ability will depend on many things, like whether the property is positively or negatively geared, the property value, your equity in the property and your current loan.

    The best way to check is to chat with one of our dedicated home loan specialists who can help you to break down the exact financial implications of your investment property.

    Does HECS affect my borrowing power?

    A HELP loan is treated the same way as any other personal loan.

    Since HECS is still a liability under your name, it will be taken into account when the bank calculates your debts and liabilities against your income.

    Besides my deposit, what costs do I need to budget for when buying a house?

    Deposit isn’t the only upfront cash you’ll need when it comes time to buy your new home.

    You’ll need enough to cover additional costs such as stamp duty, inspection fees, house insurance, moving costs, applicable bank fees, as well as legal or settlement agent fees and charges.

    Our comprehensive first home buyer’s guide can help clarify any of the aforementioned costs you may be unfamiliar with and more.

    What happens next?

    Once you’ve taken the time to assess your borrowing power and have an idea of your budget, head on over to pre-approval for a home loan in 4 easy steps that take less than 5 minutes of your time. Whether it’s for a new home loan, refinancing purposes or topping up your existing home loan, Homestar Finance has you covered.

    Simply tell us a bit about yourself and the loan you’d like, then one of our experts will be in touch within 24-48 hours. You’ll be assigned a home finance manager who can walk you through any questions or concerns you may have in regards to the costs involved, property options and details relevant to your loan of choice.

    1 Rates shown apply to new eligible Owner Occupieda or Investment home loansb only, loan limits may apply depending on your product (refer to the product page) and at least one applicant is on PAYG employment. For fixed rate loans, after the fixed rate term, a variable rate will apply. Rates are subject to change without notice. Existing borrowers may have different interest rates which are dependent on the rate offered to the borrower at the date when a home loan settled and any reductions or increases the lender decided to make on the existing loan over time. Accordingly, there is not one standard variable rate that applies to all Homestar home loans and existing customers can confirm their current rate(s) by logging in to internet banking or by contacting customer service. Terms, conditions, and eligibility criteria apply.

    2 Comparison rates are based on a basic Homestar loan, on a $150,000 loan amount over 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

    3 Third party cost(s) incurred by service provider(s) are payable and may vary or increase depending on the service provider, nature of the service and request. Any additional cost(s) are passed on directly to the applicants(s). If there is a variation or an increase, a separate quote will be provided..

    4 Disbursements may also be payable.

    Other fees and charges may apply.

    DISCLAIMER: Terms, conditions and eligibility criteria apply to all our loan products and features. Fees, charges and disbursements are payable. Final approval is subject to credit assessment. Information valid as at 18th April 2024 which is subject to change without notice. Please consider if the product is appropriate for your individual circumstances. If you need assistance or have any questions about a product or feature and its suitability, please contact our Loan Specialists.

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