Finding out exactly how much you can borrow (and comfortably pay back) is one of the first and most important steps to take when thinking about buying a house. 🏠
Knowing how much you can afford to borrow gives you a good budget to work with when looking at home designs and blocks of land. A great way to do this is through our free finance health check. Our friendly finance team will help you understand what you can afford, as well as give advice about savings goals, how to pay off debt and what kind of deposit you will need - so you have all the info you need to start the journey.
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What factors affect what home loan I can afford?
Your borrowing power is determined by a mix of criteria which is designed to assess your ability to meet your home loan repayments.
Below are the most common factors that banks and other lenders will consider when determining how much you can borrow
Income - How much income do I need to borrow for a mortgage?
Your income is one of the first and most important criteria lenders will look at.
Besides assessing your ability to afford loan repayments, lenders will also consider your employment security and any apparent future risks (for example, if you are self-employed).
Generally, the more stable your monthly income is, the more likely it is that your application will be approved.
Assets - What are considered assets for a mortgage application?
Assets such as cars, properties, and even shares you’ve invested in are all proof to lenders that you can save money over time and can therefore make you more attractive as a borrower.
Debts and living expenses - What types of debt do lenders consider for a home loan?
When assessing your ability to repay your mortgage, lenders will look at any debts you have and the costs of maintaining your current lifestyle.
Some of the most common debt types include:
- Personal loans
- Credit cards
- Loans through AfterPay and other “Buy Now Pay Later” services
- Any existing mortgages you may have
- Portfolio loans, or loans that provide the funds you need to buy shares and other investments
- Tax debt
When it comes to living expenses, you’ll need to factor in everything from rent, groceries, and utility bills, to your day-to-day expenses when dining out, shopping, and putting fuel in the car.
Credit score - What credit rating do I need for a home loan?
Your credit score is a number that is calculated based on your credit report, which includes records on money you've borrowed, loans you've applied for, and whether you pay them back on time.
Your credit score will be between zero to 1,000 or 1,200. The higher your score is, the more reliable you will look to lenders - a score of at least 670 and above is considered good.
Property value - Why do lenders require independent property valuations before approving home loans?
Sometimes the amount you think a property is worth might not match up with what it’s actually worth in the market.
To determine a home’s true value and how much money they will lend to you, lenders may conduct a property valuation. The outcome of this may impact whether or not you are approved to borrow a certain amount of money.
Types of home loans - How does this affect my borrowing power?
The amount of money you can borrow may be influenced by the term (length), interest rate, fees, repayments, and other features of the home loan you’re applying for.
For instance, a loan with low fees and interest could mean lower repayments and therefore boost your borrowing power.
How much should I save for a house deposit?
For most lenders, the more money you have saved to put on a home loan deposit, the more you’ll be able to borrow. Most lenders require a deposit of at least 10 - 20% of the total home loan amount.
At Easystart, we understand not all first home buyers may not have a large amount of savings available for a deposit. Learn more about our low deposit home loans here.
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