Buyers Hub
How Much Can I Borrow for a Home Loan?
Before you compare loans or apply for pre-approval, it helps to get a clear picture of your finances. Lenders assess your income, expenses, debts and savings to estimate what you can borrow and whether repayments stay affordable under rate buffers. Knowing your range early sets realistic land-and-build targets and reduces surprises later.
To work out what you can comfortably afford, we’ll start by mapping your budget and savings, then explain how lenders assess borrowing power, before helping you calculate your borrowing power and narrow your land-and-build price range.
Remember – we are experts in the field of residential development, therefore all our recommendations in other areas are general in nature only!
Calculate Your Budget and Savings
Build a simple, realistic home-buying budget in three steps:
1. Map your monthly cashflow
Start by telling your money where to go each month, instead of wondering where it went. Open your banking app and look back over the last 2–3 months to capture a true picture, not just a “good week.”
Income
List your after‑tax pay first, because that’s what services your loan. If you regularly receive overtime, penalty rates, commissions, or allowances, note the average over a few months (lenders often “shade” variable income, so be conservative). If you have any consistent secondary income, like board from a housemate or eligible government payments, include them only if they’re ongoing and documentable.
Fixed expenses
Next, map the non‑negotiables: rent or board, utilities, phone and internet plans, transport (fuel, public transport, car rego), insurances (car, health), and childcare or school fees. These are your baseline living costs and lenders will cross‑check them against your statements and benchmarks. If bills are quarterly, divide by three to get a monthly figure.
Debt commitments
Write down the minimum required payments for credit cards, personal or car loans, HECS/HELP, leases and any Buy Now Pay Later. Remember: lenders assess credit cards by the limit, not the balance—so a $10,000 limit is treated as a monthly commitment even if you pay it off. If you can lower limits or close unused cards before applying, note that as a to‑do.
Discretionary spending
Now capture the spend that creeps: groceries, dining out, coffee runs, streaming subscriptions, gym, gifts, hobbies and holidays. Scan your statements and average them—don’t guess. This isn’t about cutting everything; it’s about being honest so you can make deliberate tweaks for the three months before you apply.
When you add these up, two numbers matter:
- Your “everyday surplus”: income minus all spending. This shows what you can comfortably put toward a deposit and, later, a home loan.
- Your “lender view” surplus: income minus lender‑assessed expenses and debt commitments (often a little higher than your own budget due to buffers). This indicates your borrowing power.
2. Set a deposit target and timeline
Turn a big goal into bite-sized, scheduled steps. Start by defining your purchase range, then back into a deposit number and a date you can commit to.
Choose a realistic purchase range
Look at recent prices in the areas you’re interested in and a build estimate. If you’re unsure, sketch two scenarios (conservative and stretch) so you can compare.
Translate that into a deposit goal
Aim for a 20% deposit plus 5-6% for costs if you want to avoid Lender’s Mortgage Insurance (LMI). If that feels out of reach in your timeframe, map the alternatives:
- Lower deposit with LMI (often workable at 5–15% deposit).
- Government guarantees (e.g., Australian Government 5% Deposit Scheme) that let you buy with as little as 5% without LMI, subject to income/price caps and availability.
- Family guarantee/pledge, where a family member provides limited security instead of cash.
Put numbers to paper
Example: If your all‑in land + build is $550,000:
- 20% deposit target: $110,000 (plus ~$27,500–$33,000 for costs) to avoid LMI.
- 10% path with LMI or a guarantee: $55,000 (plus costs).
Pick a date and make the maths practical
Choose a target settlement or contract month (e.g., 18 months from now) and divide your deposit gap by the number of pay cycles. If you need $45,000 over 18 months and you’re paid fortnightly, that’s about $1,155 per pay. If that’s tight, adjust the timeline, consider the 5–10% path, or widen your community/lot size options.
Build in a buffer
Set aside a small contingency (e.g., 5% of build cost) for site works, upgrades, or valuation differences. It’s easier to dial back later than scramble at approval.
3. Strengthen and evidence “genuine savings”
Lenders don’t just want to see money—they want to see the habit. “Genuine savings” means funds you’ve built up over time, typically held for at least three months. Show both strength (amount) and consistency (pattern).
Make your savings visible and intentional
Open a separate, high‑interest savings account and nickname it “Deposit.” Automate a transfer the day your salary lands so saving isn’t competing with daily spending. A steady, same‑day transfer tells a positive story on your statements.
Season lump sums
Gifts, tax refunds, bonuses, or sale of assets can help, but many lenders won’t count them as genuine savings unless the funds sit in your account for 3+ months. If you’re relying on a gift or grant, discuss with your broker which lenders recognise them and what evidence they require (stat decs, grant approval letters).
Keep your last 90 days squeaky clean
Minimise cash withdrawals, avoid overdraws and dishonours, and pause discretionary spikes. Lenders will review this window closely. If you’re reducing credit limits or closing cards, do it 30–60 days before application so your statements and credit file reflect the change.
Track and document your story
Keep payslips, account statements, and any supporting documents (rental ledger if you’re using “rent as genuine savings” with a lender that allows it). Some lenders accept strong rental conduct in lieu of the full savings history—policy varies, so get advice early.
Consider acceptable alternatives
If building genuine savings will take too long, explore:
- First Home Guarantee (subject to caps/places) to avoid LMI with ~5%.
- A family guarantee to meet the 20% equity hurdle without cash.
- Longer timeline with a lower purchase price now and upgrade later.
- Your broker can match these paths to lenders that best fit your profile.
Understand Your Borrowing Power
Lenders don’t start with the property; they start with your household. They run your income and expenses through a conservative model to test whether you could still afford repayments if rates rise and life gets busy. Knowing the moving parts lets you shape your application months in advance.
While lenders may differ slightly when it comes to how much risk they are willing to assume, they all calculate your borrowing power in more or less the same way. That is, on the basis of:
- PAYG income: Lenders usually rely on your base salary verified by the last 2–3 payslips and, sometimes, an employment letter. Overtime, commissions and allowances can count, but many lenders “shade” variable income (e.g., use 60–80% of the average over 3–6 months) to be cautious.
- Self‑employed income: Expect to provide the last two years’ tax returns and financials. Some lenders accept one year if the most recent year is stronger. Add‑backs (e.g., depreciation, one‑off expenses) can help, but policies vary—this is where a broker’s comparison is valuable.
- Secondary income: Regular rental income, consistent board from a housemate, or certain government benefits may be considered, often at a reduced percentage and only with documentation.
- Declared budget: You’ll provide a breakdown (housing, transport, groceries, childcare, insurance, subscriptions, discretionary).
- Verification: Lenders compare your declaration to your last 3+ months of bank statements and then to a benchmark like HEM (Household Expenditure Measure). They use the highest figure to be safe. If your statements show higher spending than your declaration, they’ll use the higher amount.
- Credit cards and overdrafts: Assessed by limit, not balance—often 3–4% of the limit per month is counted as a commitment. A $10,000 limit can reduce borrowing capacity even if you clear it monthly.
- Personal/car loans, HECS/HELP, leases, BNPL: Minimum required repayments are included. BNPL appearing frequently on statements can trigger closer scrutiny of conduct.
- Practical tip: Reducing limits or closing unused facilities 30–60 days before applying can materially lift capacity and present cleaner statements.
- Serviceability rate: Your proposed loan is stress‑tested at an interest rate buffer above the actual rate (commonly around 3 percentage points). This ensures you could still repay if rates rise.
- Loan term and type: A standard 30‑year principal‑and‑interest (P&I) structure generally tests better than interest‑only (IO). IO can reduce actual repayments initially, but some lenders assess IO at higher assumed repayments.
More dependants generally mean higher assessed living costs. If custody arrangements affect dependents or child support, provide documentation so the lender models it correctly.
- Loan‑to‑Value Ratio (LVR): Borrowing more than 80% usually triggers LMI, which adds cost and sometimes tighter policy gates. A larger deposit can improve product choice and pricing.
- Property type and location: Some lenders apply haircuts to rental income or restrict high‑density postcodes, very small apartments, or unique security types. For land + construction, lenders value “as‑if complete,” using your building contract and specs.
- Your credit report shows enquiries, limits and any blemishes. Recent missed payments, overdrawn accounts, or multiple hard checks in a short period can reduce borrowing power or require more documentation.
- Clean conduct in the 90 days before application (no dishonours, no overdraws, fewer gambling indicators) strengthens your case.
Income shading, negative gearing add‑backs (for investors), and treatment of allowances all differ by lender. A broker can model your scenario across policies to find the best fit.
Calculate Your Borrowing Power
If you’re asking yourself ‘How much can I borrow for a mortgage’, and want to get a rough figure of how much that might be, most lenders provide online borrowing power calculators. These can give you a quick estimate of how much they may be willing to loan you based on your current financial position.
Next step:
Explore Grants and Concessions
Now that you’ve got a clearer idea of what you can borrow, the next step is seeing what support you may be eligible for. Grants, stamp duty concessions and federal schemes can reduce your upfront costs and, in some cases, lower the deposit you need, especially if you’re building a new home. Understanding what applies to you can help refine your budget before you commit.
