Buying your first home is a huge milestone; exciting, life-changing, and let’s be honest, a little bit terrifying. One of the most common (and confusing) questions first-home buyers ask is: "How much can I borrow?"
If you’ve typed that into Google lately, you’re not alone.
What Is Borrowing Capacity?
How much a lender assesses you may be able to borrow based on your income, expenses, and other factors.
Even if you feel comfortable paying a certain amount per month, your bank will do their own sums, using tools like the Household Expenditure Measure (HEMS) and factoring in buffers for interest rate rises. It’s not personal. It’s about risk.
As an example, lenders may apply benchmark expenses that differ from an individual’s own budgeting; if HEMS suggests your household type should spend $3,200, the bank will use that higher figure to play it safe.
What Affects How Much You Can Borrow?
Several factors shape your borrowing power:
- Your income (including stable second jobs or bonuses)
- Existing debts (credit cards, car loans, HECS/HELP)
- Living expenses (actual vs benchmarked)
- Number of dependents
- Credit score
- Interest rate buffer (lenders will test your ability to repay if rates rose by 3% or more)
Every lender is different and lender policies vary, and eligibility can differ depending on the lender’s criteria.
Factors That Can Affect Borrowing Capacity
Good news: You’re not stuck with the number your bank spits out.
Here’s how to boost your chances:
- Factors lenders commonly consider include existing debts, income sources, spending patterns, and credit history
- Tidy up your credit score: Pay bills on time, don’t apply for multiple loans at once, and check your report for errors (you can get it free)
- Reduce discretionary spending: Lenders may review recent spending patterns as part of their assessment
- Add a second income: Even a part-time job can tip the scale
Choose the right lender: A mortgage broker can help you compare serviceability policies and help you compare different lenders’ assessment criteria.
Overwhelmed? You’re Not Alone
If this feels like a lot to process, that’s because it is. Borrowing for a first home isn’t just about ticking boxes, it’s about understanding the rules of the game so you can play smart.
Many buyers fear rejection or being told "you can’t afford it." But preparation can help you better understand how lenders assess applications.
Need Help Making It All Make Sense?
Download the free First Home Buyer e-book, your all-in-one guide to the home loan process. It’s packed with tools like:
- A borrowing power checklist
- Government grant and scheme breakdowns
- Step-by-step guidance from saving to settlement
- Budget calculators and LMI tips
If you’re serious about buying your first home, plan your next steps with a clearer understanding of the process.
