Your income is a key factor influencing lenders when working out how much they’re willing to loan you. It determines the level of mortgage repayments you can afford.

If you’re married or coupled, your ability to make repayments may be deemed more viable due to two possible income streams, meaning your may be eligible for a larger loan. Supplying proof of regular savings also indicates you have the discipline to maintain regular mortgage repayments.

How much debt you have and your living costs are equally crucial in establishing the amount of money you can potentially loan.  Your outstanding debts and any similar financial demands on your income naturally affect your ability to make loan repayments. That’s why lenders will ask about how much you owe and to whom when calculating your borrowing power. This includes any outstanding monies owed to credit cards, interest free loans or 'buy now/pay later' systems such as After Pay or Zip Pay.

While certain debts and expenses may limit how much you can borrow, others may result in your mortgage application being rejected.

Lenders will also consider your debt-to-income ratio, and ongoing financial commitments like childcare and school fees.

Your credit history plays a significant role in dictating your borrowing power. It could prove that you’re a diligent customer who always makes their repayments in full and on time, in which case you may qualify for a larger loan.

Alternatively, it may show that you’re an unreliable customer who often misses their credit card and other ongoing repayment obligations – or makes late repayments – putting you in the “high-risk borrower” category, working against you when you’re applying for a mortgage.

That’s why it’s a great idea to get an up-to-date credit report, so you know where you stand before filing a loan application. Your mortgage broker can assist you with a credit report, or ask us for assistance from our in-house mortgage broker.

Another way you can demonstrate your ability to honour your loan repayments is with your deposit size. The more generous your deposit amount – it should be at least 20% – the more likely a lender is to consider your mortgage request as it proves you have the discipline to accrue “genuine” savings over a set period.
Plus, the amount a lender is willing to extend to you often depends on your deposit size relative to your chosen property’s value, also known as the loan-to-value ratio or 'LVR'.

Your preferred home loan type and the term – or period – over which you plan to repay it also influences your borrowing capacity.

For example, a loan with minimal features, lower fees, and a lower interest rate may equate to lower repayments, putting you in a position to borrow more. Opting for a longer loan term may also translate to lower repayments.

Conversely, choosing a shorter loan term could save you thousands in interest. However, it could increase your monthly repayments and therefore may limit your borrowing power.

Whatever tangible assets you have – like an investment property, vehicle, share portfolio, and so on – can boost your borrowing capacity. That’s because the nature of your existing asset profile tells lenders a lot about your ability to save and invest money over time.

How much a lender is willing to give you very much depends on your chosen property’s value. The lender will usually conduct an independent property valuation to establish how much a property is worth before deciding on your loan amount.

You can increase your borrowing power by cutting your expenses or increasing your income (even better, do both).

Many Australians have some debt or another. That said, it’s imperative you act to reduce your debt as much as possible before applying for a home loan. Clearing as much debt as possible from your plate can help boost your borrowing capacity or, at the very least, ensure your loan application is approved.

As for bolstering your income status, consider requesting a pay rise, investing more money in assets like shares, or supplementing your income through investment dividends.
Finding a lender who favours your type of income can also play a huge role as different lenders often view casual, contract, and full-time employment differently. And be sure to state all income forms received – like rental or dividend income – when making your loan application. Government benefits may be considered income by some lenders.
Your mortgage broker can assist you with sourcing the best lender for your needs and circumstances. Ask us for assistance from our in-house mortgage broker.