Most Australians can borrow between 4 and 6 times their annual income. But that’s only a guide. The actual amount depends on your full financial picture.
For example, if you earn $100,000 a year, your borrowing range might sit between $400,000 and $600,000. However, your final approval will vary based on debts, expenses, deposit size, and lender policies.
This guide explains everything clearly so you can understand your borrowing power before speaking to a lender or broker.
What Determines Your Borrowing Power?
Lenders don’t rely on a fixed formula. Instead, they assess your ability to repay the loan now and in the future through a serviceability test.
1. Your Income
Your income is the starting point. This includes salary, wages, rental income, and business earnings. Some lenders may also consider bonuses or overtime if they are consistent.
The higher your reliable income, the more you can borrow.
2. Your Existing Debts and Liabilities
All liabilities reduce your borrowing capacity. This includes:
- Credit cards (limits, not just balances)
- Personal and car loans
- HECS/HELP debt
- Buy-now-pay-later accounts
Even unused credit limits count, as lenders assume you could use them at any time.
3. Your Living Expenses
Lenders carefully review your spending. They compare your declared expenses with standard benchmarks like the Household Expenditure Measure (HEM). If your spending looks higher than average, it affects how much you can borrow.
4. Your Deposit Size
A larger deposit improves your position. Ideally, a 20% deposit helps you avoid Lenders Mortgage Insurance (LMI).
You can still buy with less, but:
- You may need to pay LMI
- Your overall loan cost increases
5. Your Credit History
A strong credit record improves your chances of approval and better interest rates. Late payments, defaults, or too many loan applications can reduce your borrowing power.
6. The Interest Rate Buffer
Lenders assess your loan at a higher rate than the current one, usually about 3% more. For example, if interest rates are 6%, they assess repayments at around 9%. This ensures you can still afford repayments if interest rates rise.
What Is LVR and Why Does It Matter?
Loan-to-Value Ratio (LVR) is the percentage of the property value you borrow.
Example: Borrowing $450,000 for a $500,000 property = 90% LVR.
A lower LVR offers key advantages:
- Better interest rates
- No LMI (typically at 80% or below)
- Higher approval chances
- More lender options
Most lenders allow up to 95% LVR, and some government schemes support low-deposit buyers.
How Much Do You Need Upfront? (Beyond the Deposit)
One of the most common mistakes first-home buyers make is saving only for the deposit and forgetting about the additional costs that come with purchasing property.
Here’s what to factor in:
- Stamp duty (varies by state; concessions may apply)
- Legal and conveyancing fees ($1,500–$3,000)
- Building and pest inspections ($400–$800)
- Loan establishment fees
- Mortgage registration fees
- Insurance
- Moving costs
- Council rates or strata fees (if applicable)
Planning for these costs prevents financial stress later.
Fixed vs. Variable Rate: Which Affects Borrowing More?
Your loan type won’t drastically change how much you can borrow, but it affects how you manage repayments.
Fixed rate loans
- Locked interest rate for 1–5 years
- Predictable repayments
- Break fees may apply if you exit early
Variable rate loans
- Rates move with market conditions
- More flexibility (extra repayments, offset accounts)
- Repayments can increase or decrease
Some borrowers split their loans to balance stability and flexibility.
A good mortgage broker can help you figure out which structure works best for your situation.
What Is Pre-Approval and Should You Get One?
Pre-approval (also called conditional approval) is when a lender assesses your financial situation and gives you an indication of how much they’re willing to lend, before you’ve found a property.
Getting pre-approved has real advantages:
- You know your realistic budget and can search with confidence
- Sellers and agents take you more seriously
- You can move quickly when you find the right property
- It reduces the risk of falling in love with a home you can’t finance
Pre-approval is generally valid for 90 days and is not a guaranteed final approval. Lenders will still need to assess the specific property before giving formal approval.
How to Improve Your Borrowing Power
Small financial changes can make a big difference before applying:
- Pay off or reduce existing debts
- Close unused credit cards
- Cancel unnecessary buy-now-pay-later accounts
- Avoid multiple loan applications
- Save consistently
- Cut back on discretionary spending
- Check your credit report for errors
These aspects show lenders that you are financially responsible.
Ready to Find Out What You Can Borrow?
Understanding your estimated borrowing range is helpful, but getting an accurate figure based on your situation is what truly matters.
At Kesh Finance Solutions, we help home buyers across NSW secure the right loan for their needs. Whether you’re a first-home buyer, upgrading, or investing, we compare lenders, manage the process, and provide clear advice.
Get in touch with our team today and take the next step toward owning your home.
