Maximum Borrowing Capacity

The amount you are allowed to borrow is based on the loan assesment worked out by the lender and their lending criteria. Excellence Finance loan consultants will firstly assess your loan application in-house before deciding the most suitable lender for you,this usually applies when you have a specific loan scenario.

How much can I borrow?

Most of the time, the amount you need to borrow has been worked out well before beginning your property search. As people get closer to purchase, many things conspire to influence what they eventually borrow. (Not at least of all many of us end up purchasing properties at prices greater than we initially intended!)

Get a loan pre-approved first:

Home loan pre-approval is something you should definitely get if you have the time. Most lenders offer it and it is usually valid for three months. As you would expect, it is subject to the conditions under which it is approved, but it does give you a very clear framework within which to work.

How do lenders assess your home loan application?

Lenders take into account the maximum cost of the property (including purchase costs if these are to be included in the loan), the size of your deposit and the loan repayments at current interest rates (some lenders use a higher "stress" rate which factors for potential rate rises). They will typically review all your income sources and expenditure, add a margin for safety, and then calculate your uncommitted monthly income. The most important factor to a lender is your level of uncommitted monthly income. The greater it is, the larger your borrowing capacity overall.

Factors that can impact your borrowing capicity may include:

• Loan to value Ratio (LVR)
• Income and types of income, e.g. casual vs. full-time, Bonuses Vs Commission
• Other loans (Liabilities that you already have)
• Credit Card limits
• Loan terms
• Number of dependents and their situation
• Loan products
• Tax rates
• Rental income

Some lenders calculate maximum borrowing capicity differently:

When it comes to the cold, hard facts of how much you can borrow, it might surprise you to know that lenders calculate your borrowing capacity differently, so it can pay to consult a mortgage broker.

Examples of different lender results for the same scenario:

To help you understand the extent to which lenders will differ in both your maximum borrowing capacity and the interest rate or deal you may be offered.

Borrowing capacity schedule:

If you are the kind of person who needs a "general rule" as a guide, you could safely assume that most major lenders will draw the line at allowing you to borrow a certain percentage of your gross income going towards your loan repayments. If two people are applying for a loan, then the incomes are added together and treated as one amount, although outgoings are treated separately. The size of your family will ofcourse also impact your assumed outgoings. The schedule above gives you some idea of what you would typically be able to borrow. While you can't present these numbers "to the bank" as evidence to support your application, they are a useful guide.

If you would like to speak to one of our Home Loan Consultants, please contact us  or phone our office on (02) 9609 4655.