How much can I borrow 2023 How much can I borrow 2023
How much can I borrow 2023

When it comes to borrowing capacity, it’s usually assumed that 30% of your gross income will go towards home loan repayments. From there, factors like assets, spending, and current debts will impact your total borrowing power.

Using a borrowing power calculator can help you determine how much house you can afford and what you can expect lenders to give you for a mortgage loan.

So, how much can you borrow on a mortgage?

That will depend on a number of factors, which we’ll cover in this guide.

How much can I afford to borrow based on my deposit?

A 10-20% deposit is expected for you to qualify for a home loan. The more money you put down, the more house you can afford. A higher down payment reduces the total amount that you have to borrow.

If you have a deposit of less than 10%, you’ll need to borrow more if you intend on getting the home you want.

That said, we can roughly determine what your monthly repayments would be based on the house you want and how much money you intend to put down.

For example, if you’re planning to purchase a $400,000 home and you put down $80,000 (20%), that would mean you’re borrowing $320,000.

At an interest rate of 5% over a 30-year mortgage, that would put your repayments each month around $2,500

If you’re purchasing an $800,000 home with a $160,000 deposit (20%), that would mean you’re borrowing $640,000. That translates into a monthly repayment of $5,000.

To figure out exactly what your repayments will be, you can use our mortgage calculator and enter your own numbers. This will help you determine how much you can borrow for a home based on what you’re able to afford in repayments each month.

How do lenders calculate how much I can borrow on a home loan?

The amount that you can borrow or your “borrowing power” is determined by taking your income and comparing it against your expenses and various debts. Lenders will also look at the value of the potential home and factor that into the overall scenario.

Keep in mind that there is also a buffer for potential changes in interest.

Of course, every lender has their own unique formula that they use, but there are a number of similarities between the lenders. Most lenders will consider the following factors:

  • Your income
  • Your expenses
  • Your debts and liabilities
  • The size of your deposit
  • The value of the property
  • Your credit history
  • Your employment history

Anything you can do to improve any of these areas will increase your chances of being approved for the home loan amount of your choice. Continuing to work the same job for at least a few years leading up to your application can make a big difference, for example.

If you can, reduce your expenses, pay down outstanding credit card debts, and try to save more money for a deposit. Be sure to check your credit score, whether through GetCreditScore or another provider, and look for anything that looks unusual on the report. Appeal any red flags that may stand out on your report.

How much of your salary can you afford to spend on repayments?

It’s a best policy not to spend more than 30% of your income on home loan repayments. One way to figure this out is by: Determine what 30% of your annual income is (you could divide your yearly income by 10, then multiply the result by 3, for example). Then, divide it by 12 to determine a reasonable monthly repayment.

$50,000 annual gross income at 30% would be $1,250 per month, for example.

Keep in mind that this is the maximum you should be paying on a mortgage repayment and not everyone can afford to do the most. If you have outstanding debts, high car payments, or anything like that, it can throw off the affordability of this formula.

If you currently rent, a great way to figure out if you’ll be able to afford a mortgage is to compare it to whatever you’re paying for rent. Calculate the difference between rent and a mortgage and see if you would be able to afford it.

In some cases, the amount you’re paying in rent is actually more than you would be paying if you had a mortgage. And renting doesn’t provide the financial benefits of home ownership, like building equity.

What changes could you make in your life to be able to afford the mortgage? Is there anything you could go without? Could you cancel some subscriptions? Reduce memberships?

Also, do not forget to factor utilities in when purchasing a home as well. If you’re going from a one bedroom apartment to a four bedroom home, your utility costs will likely increase by a lot. Don’t let those first bills be a surprise.

How much should I borrow?

It’s important to realise that lenders may let you borrow more than you can afford. Only you truly know what you’re able to afford. In some cases, the lender’s amount may be lower than you expected, which could lead to disappointment.

Regardless of the amount you’re given, don’t stretch yourself to the max by trying to afford a home loan that is beyond your reach.

Using the borrowing power calculator will only provide you with a number but ultimately, you know how much you can borrow.

Ask yourself a few questions before accepting a home loan offer:

Can you afford it?

Be honest with yourself and look at your current financial situation, if you struggle currently, will you be able to afford a higher repayment?

What kind of lifestyle do you want?

A home loan may put a damper on other areas of your life. If you’re used to going out every weekend and shopping, you may have to change that.

Have you factored in interest rates?

Interest rates can change over time, so be sure to factor that in and acknowledge how that will increase your repayments.

Final Thoughts

Buying a home is an exciting and important period of your life. The decisions you make right now will impact you for a long time, so you want to take everything seriously.

If you’re ready to apply for a home loan, speak with an expert mortgage broker today from Fox Home Loans. We’ll walk you through the entire process step-by-step to ensure you get a loan that is affordable.