Key Highlights

  • Your borrowing capacity is not a fixed number, it is calculated individually based on your income, living expenses, existing debts, credit history, and deposit size
  • Most lenders will consider lending between four to six times your gross annual income, though this is a starting point, not a guarantee
  • Lenders use the Household Expenditure Measure (HEM) as a minimum benchmark for living expenses even if your actual spending is lower, lenders will apply HEM as the floor
  • Credit card limits are assessed at their full limit, not your current balance reducing or closing unused credit cards can significantly increase your borrowing capacity
  • Buy Now Pay Later accounts such as Afterpay and Zip are treated as debts by lenders and will reduce how much you can borrow
  • HECS-HELP debt reduces your assessable income and affects borrowing capacity, even if repayments feel manageable
  • A mortgage broker can assess your position across 50-plus lenders simultaneously without triggering multiple credit enquiries on your file
  • First home buyers may be eligible for the First Home Guarantee, allowing a 5% deposit without paying LMI
  • Getting a pre-approval before you start house hunting clarifies your budget and strengthens your position when making an offer
  • Stanford Financial offers a free assessment with no obligation to proceed

If you have started thinking about buying a home, chances are the first question you have asked yourself is: how much can I actually borrow? It is one of the most important things to understand before you start inspecting properties, and getting a clear picture early can save you a lot of time, stress, and disappointment down the track.

The honest answer is that your borrowing capacity is not a single fixed number. It is calculated based on a combination of your income, your expenses, your existing financial commitments, and the policies of the lender you approach. Two people on the same salary can end up with very different borrowing limits depending on how their finances are structured.

In this guide, we walk you through exactly how lenders assess your borrowing capacity, what factors make the biggest difference, and how working with a mortgage broker can help you put your best foot forward.

What Is Borrowing Capacity?

Borrowing capacity refers to the maximum amount a lender is willing to offer you for a home loan, based on their assessment of your ability to make repayments comfortably. It is sometimes referred to as your borrowing power or serviceability.

Lenders are not just asking whether you can afford the loan today. They are also stress testing whether you could continue to make repayments if interest rates were to rise, or if your personal circumstances were to change. This is a regulatory requirement under responsible lending obligations, and it is the reason two people earning the same income can receive quite different borrowing assessments.

What Factors Determine How Much You Can Borrow?

There are several key inputs that lenders use when calculating your borrowing capacity. Understanding each one helps you see where you have room to improve your position before you apply.

Your Income

Your gross income is the starting point. This includes your base salary, any overtime or allowances, rental income if you own investment property, and in some cases, government payments such as Family Tax Benefit. For self-employed applicants, lenders typically look at your last two years of tax returns to establish your average income.

Not all income is treated equally. Lenders generally apply a shading factor to variable income such as bonuses, commissions, and casual wages, using only a percentage of those amounts in their calculations. This is especially relevant for self-employed borrowers, where documenting income clearly and compliantly can make a significant difference to the outcome. A mortgage broker can help you understand exactly how your income will be assessed by different lenders.

This is one of the most significant factors in modern lending assessments. Since the introduction of tighter responsible lending standards following the Royal Commission into Banking in 2019, lenders have scrutinised living expenses far more carefully than they once did.

Most lenders use a benchmark called the Household Expenditure Measure (HEM) as a floor for living expenses. HEM is a nationally recognised dataset that estimates reasonable living costs based on your household size and location. Even if your actual expenses are lower than HEM, many lenders will use the HEM figure in their calculations.

Your bank statements from the last three to six months will generally be reviewed as part of the application process, so consistent patterns of high discretionary spending can affect your outcome.

Every financial commitment you currently have reduces the amount a lender is willing to offer you on a new home loan. This includes:

  • Car loans and personal loans
  • Credit card limits (note: lenders assess the full credit limit, not just your current balance)
  • Buy Now Pay Later accounts such as Afterpay and Zip
  • HECS-HELP debt
  • Any existing mortgages, including investment property loans

One of the most common and most impactful ways to increase your borrowing capacity before applying is to reduce or close unused credit cards and cancel any Buy Now Pay Later accounts you no longer need. Each of these liabilities is factored into your assessment regardless of whether you actually use them.

Your credit score reflects how reliably you have managed financial obligations in the past. A strong credit history demonstrates to lenders that you are a lower risk borrower, which can improve not only your borrowing capacity but also the interest rate you are offered.

 

Late payments, defaults, and multiple credit enquiries in a short period can all have a negative effect on your score. If you are planning to apply for a home loan in the next six to twelve months, it is worth checking your credit report and addressing any issues early. You can access your credit report for free through agencies such as Equifax, Experian, and illion.

The size of your deposit relative to the purchase price is known as your Loan-to-Value Ratio, or LVR. A lower LVR meaning a larger deposit generally results in better loan terms and a higher borrowing capacity, as it reduces the lender’s risk. Most lenders prefer an LVR of 80% or below. If you are working with a smaller deposit, our low deposit home loan options may be worth exploring.

If your deposit is less than 20% of the purchase price, you will typically be required to pay Lenders Mortgage Insurance (LMI), which is a one-off premium that protects the lender in the event of default. LMI can add several thousand dollars to the upfront cost of your purchase, although in some cases it can be capitalised into the loan. First home buyers may also have access to government schemes that allow purchasing with a 5% deposit without paying LMI.

Lenders factor in the number of dependants in your household when assessing your living expenses. More dependants generally means higher assumed household costs, which reduces the income available for loan repayments. This does not mean that families cannot borrow well. It simply means that having accurate information about your household structure is important when your application is assessed.

How much can you typically borrow?

As a general rule of thumb, most lenders will consider offering between four to six times your gross annual income, subject to your expenses and existing debts. For example, a household with a combined income of $150,000 might qualify for somewhere between $600,000 and $900,000, though the actual figure will depend on your individual financial profile and the lender’s policies.

This is a rough guide only. Your actual borrowing capacity can differ significantly from these estimates, which is why speaking with a mortgage broker is the most reliable way to get an accurate figure.

Understanding the Household Expenditure Measure (HEM)

The Household Expenditure Measure is a standard benchmark used by the majority of Australian lenders when assessing living expenses. It is based on research into typical Australian household spending patterns and is segmented by household size, income level, and postcode.

In practice, this means even if your personal spending is quite lean, the lender may use HEM as the minimum expense figure in their serviceability calculation. Conversely, if your actual declared expenses exceed HEM, which they may if you have a high lifestyle spend, the lender will use your actual figures.

Understanding HEM is important because it explains why two borrowers with similar incomes but different household sizes may receive quite different borrowing assessments. Your mortgage broker can help you understand which category you fall into and how this affects your specific outcome.

How a Mortgage Broker Can Help Maximise Your Borrowing Capacity

One of the most practical advantages of working with a mortgage broker is that they can assess your borrowing capacity across multiple lenders simultaneously, rather than being limited to a single institution’s criteria. Different lenders apply different policies when it comes to income shading, expense assessment, and treatment of certain liability types, and these differences can result in meaningfully different borrowing outcomes. You can learn more about our process and how we work with you from first assessment through to settlement.

At Stanford Financial, we take the time to understand your full financial picture before approaching any lender. We look at how your application will be viewed by different institutions, and we help you structure it in a way that presents your situation most effectively. This might involve:

  • Advising you to reduce or close unused credit card limits before applying
  • Identifying lenders who treat your type of income more favourably
  • Helping self-employed borrowers present their income clearly and compliantly
  • Clarifying how your HECS debt or existing commitments are affecting your capacity
  • Identifying whether you qualify for a professional package product with better terms

With access to a panel of more than 50 lenders, we are not tied to any one institution. Our job is to find the product and lender that suits your goals.

Meet our team to see who will be supporting you through the process.

Common Mistakes That Reduce Your Borrowing Capacity

There are several common financial habits that can reduce your borrowing capacity without you realising it. Being aware of these before you apply can make a real difference to your outcome.

Too many credit cards or high limits. Even if your credit card balances are zero, lenders count the full credit limit as a potential liability. A $20,000 credit card limit can reduce your borrowing capacity by as much as $80,000 to $100,000, depending on the lender.

Buy Now Pay Later accounts. BNPL services such as Afterpay and Zip are now widely recognised by lenders as consumer debts. Even with small outstanding balances, these accounts are included in your liability assessment.

Irregular or undocumented income. Income that is not clearly documented through payslips or tax returns can be difficult for lenders to assess, which may result in a lower income figure being used in the calculation. This is particularly relevant for self-employed borrowers and contractors.

Applying with multiple lenders simultaneously. Each credit enquiry made by a lender is recorded on your credit file. Multiple enquiries in a short period can signal financial stress to lenders and reduce your score. Working with a broker allows you to be assessed across multiple lenders without triggering multiple credit enquiries upfront.

Not accounting for all income. Many borrowers underreport income by forgetting to include rental income, government payments, overtime, or other allowable earnings. Ensuring your income picture is complete can meaningfully increase your borrowing capacity.

How Borrowing Capacity Changes With Income

To give you a practical sense of how borrowing capacity shifts with different income levels, here are four illustrative examples. These are estimates based on typical lender serviceability calculations and assume standard expenses, no existing debts, and a 20% deposit. Your actual result may differ based on your specific circumstances.

Household Income

Estimated Borrowing Range

Typical Monthly Repayment*

Notes

$80,000 p.a.

$320,000 to $480,000

~$1,700 to $2,550/mo

Single income, no dependants

$100,000 p.a.

$400,000 to $600,000

~$2,100 to $3,200/mo

Single income, typical household

$150,000 combined

$600,000 to $900,000

~$3,200 to $4,800/mo

Dual income, couple

$200,000 combined

$800,000 to $1,200,000

~$4,250 to $6,400/mo

Dual income, strong serviceability

*Repayment estimates based on a 6.5% variable rate over a 30-year term. For illustrative purposes only. Your actual rate and repayments will vary.

Steps to Take Before You Apply

If you are planning to apply for a home loan in the next few months, there are several steps you can take right now to improve your borrowing capacity and strengthen your application.

  • Review and reduce your credit card limits and cancel any cards you do not actively need
  • Close Buy Now Pay Later accounts you no longer use
  • Avoid taking on any new debt in the six months before your application
  • Avoid multiple credit enquiries by working with a broker rather than applying directly to multiple lenders
  • Build up genuine savings history, as consistent saving behaviour signals financial discipline to lenders
  • Gather your financial documentation early, including payslips, tax returns, bank statements, and identification
  • Check your credit report and address any errors or defaults before you apply

The more organised and financially stable your profile looks at the time of application, the better your outcome is likely to be.

Borrowing FAQs

How much can I borrow for a home loan?

The amount you can borrow for a home loan depends on several factors, including your income, expenses, existing debts, and credit history. At Stanford Financial, we evaluate your financial situation to determine the maximum loan amount you qualify for, ensuring it aligns with your repayment capability. You can schedule a consultation with one of our loan advisors for a precise assessment by visiting our contact page.

Yes. Adding a co-borrower such as a partner or spouse means their income is included in the assessment, which typically increases your combined borrowing capacity. However, their existing debts, credit history, and living expenses will also be factored in. In most cases, a joint application results in a meaningfully higher borrowing limit than a solo application.

A formal pre-approval application will result in a credit enquiry being recorded on your file, which can have a minor and temporary impact on your score. However, this is generally a small and manageable effect for borrowers with otherwise healthy credit profiles. Conditional or indicative assessments, the kind that Stanford Financial can provide in the early stages, do not require a formal enquiry, so you can explore your options without affecting your credit file before you are ready to proceed.

Yes. HECS-HELP debt is treated as a committed expense in lender assessments because the repayment is automatically deducted from your income once you earn above the threshold. This effectively reduces your net assessable income. For borrowers with significant HECS debt, particularly those in specialist professions such as medicine, dentistry, and pharmacy, this can have a noticeable effect on borrowing capacity. A broker can help you understand the impact and identify lenders who treat this liability more favourably.

Some changes can have an almost immediate effect. Reducing or cancelling credit card limits and closing BNPL accounts, for example, can improve your position in a matter of weeks. Building up your savings history typically takes a few months to demonstrate to lenders. Addressing credit file issues such as clearing defaults can take longer, but the improvement to your borrowing position is often significant. If you have had credit difficulties in the past, our bad credit home loans page outlines some of the options available to you. Speak with one of our brokers for advice tailored to your specific circumstances.

If you are building a new home, the lending process works a little differently. Rather than receiving the full loan amount upfront, funds are released in stages as construction progresses. You can read more about how this works on our construction loans page.

Ready to Find Out What You Can Borrow?

Understanding your borrowing capacity is the first and most important step in your home buying journey. At Stanford Financial, we work with more than 50 lenders across Australia to help you find the right loan at the right terms, and we do it at no cost to you.

Whether you are a first home buyer trying to understand your position, an investor looking to grow your portfolio, or someone simply wanting to know what is possible, our team is here to help.

Book a free assessment with Stanford Financial today and take the first step with confidence. Get in touch here or on 0483 980 002.

Reviewed and Verified

Stanford Financial Steven Beach Steve

All content published on this website has been reviewed and verified by Steven Beach, Lending Director at Stanford Financial. With over 20 years of experience in finance and lending, Steve ensures that every article, guide, and resource accurately reflects current lending practices, lender policies, and the real-world outcomes he sees working with Australian borrowers every day. His hands-on experience across home loans, investment lending, and specialist finance means the information you read here is grounded in genuine industry expertise – not just theory.