Thinking about buying your first home but unsure how much the bank will lend you? You’re not alone. "How much can I borrow for my first home?" is one of the most Googled questions for a reason...because your borrowing capacity sets the stage for everything that follows. But figuring it out can feel like cracking a secret code.
Let’s break it down together; simply, clearly, and without the financial fluff.
What is Borrowing Capacity and Why It Matters
Your borrowing power is the amount a lender is willing to lend you for a home loan. It’s based on a mix of your income, expenses, debts, savings, and credit history, with a generous splash of fine print.
Here’s what lenders usually look at:
- Income stability: Your regular salary or income (including bonuses or self-employment)
- Expenses and liabilities: Things like car loans, credit cards, Buy Now Pay Later accounts, or even gym memberships
- Credit score: A solid score means less risk to the bank
- Interest rate buffer: Lenders apply an interest rate buffer to test whether you could still afford repayments if rates were higher. The size of this buffer varies by lender and may change over time
Think of it this way: borrowing capacity isn’t just about what you earn, it’s about what’s left after life happens.
Quick Tips to Boost Your Borrowing Power
If you’re looking to strengthen your borrowing position, some borrowers find the following general habits helpful. Whether these steps are appropriate depends on your circumstances:
- Reduce credit limits: Even unused cards impact how much you can borrow
- Consolidate or clear debts: Smaller monthly repayments = higher capacity
- Track spending: Banks love consistency — use budgeting tools to keep expenses in check
- Improve your credit score: Pay bills on time and avoid late payments
- Consider a dual income: Applying with a partner can open up more options
Rule of Thumb: How Much Home Can I Afford?
Some online calculators and commentators use income multiples as a very rough guide, but actual borrowing capacity varies significantly based on your full financial profile, depending on your financial profile. But don’t aim for the max, focus on what you can comfortably repay month to month.
Use online calculators or speak to a mortgage broker early to get a ballpark figure, and getting a pre-approval can provide more clarity on your borrowing range when you start house-hunting, noting it is conditional and not a commitment to lend.
Feeling Overwhelmed? That’s Normal
If you’re worried you’ll be declined or that you won’t borrow enough for the home you want, take a breath. You’re not failing. This is complex stuff, and you’re doing the right thing by getting informed early.
The good news? There are ways forward, whether it’s reducing your debt, adjusting your expectations, or exploring options such as family guarantee structures or first-home buyer schemes, where appropriate and subject to eligibility.
Download the Free HVCO First Home Buyer e-Book
Want to dive deeper into borrowing power, budgeting, and home loans, without drowning in jargon? Our free First Home Buyer Guide includes:
- Easy borrowing power checklists
- Tips to improve your loan application
- An affordability calculator
- Plain-English explainers for LVR, LMI, offset accounts, and more
Buying your first home doesn’t have to be overwhelming. Get clear, step-by-step guidance to help you navigate the journey from deposit to keys.
Download your free guide today and take control of your home buying journey.
