Your borrowing capacity is the maximum amount a lender will offer based on your income, expenses and debts. It varies significantly between lenders, and some will offer tens of thousands more than others for the same applicant.

Your gross annual income is the starting point. Lenders subtract your living expenses and debt repayments to work out how much is left over each month. Dependants reduce your capacity. A larger deposit improves your options and can unlock better interest rates.

Use our borrowing power calculator to get an estimate before meeting with a broker. Keep in mind the figure is a guide only. Your actual approval amount depends on the lender’s policies and how they assess your specific situation.

Most lenders require a minimum 5% deposit, though you will typically need 20% to avoid Lenders Mortgage Insurance (LMI). LMI protects the lender if you default and can cost several thousand dollars, so it is worth factoring into your budget from day one.

Beyond your deposit, buying a home comes with additional costs: stamp duty, conveyancing fees, building and pest inspections, and mortgage registration fees. These can add 3-5% to the purchase price depending on your state and any concessions you may qualify for.

Use our loan repayment calculator to see what monthly repayments would look like at different loan amounts. This helps you understand what you can comfortably afford, not just what a lender will technically approve.

Lenders assess your employment type carefully. PAYG employees with consistent payslip history are generally straightforward to process. Self-employed applicants need to demonstrate stable income over at least two years, though some lenders are more flexible for business owners.

Additional income such as bonuses, rental income or allowances may be counted, but lenders typically use only a portion of it when calculating how much you can service.

Existing debts have a significant impact on your borrowing capacity. Credit card limits are assessed at their full amount, not just the current balance. Personal loans and car loans reduce your available income. Paying down or closing unused credit cards before you apply can make a real difference to your final approval amount.

If your borrowing capacity seems lower than expected, read our guide on why borrowing power has declined and what practical steps you can take to improve it.

Once you have a clear picture of your financial position, the next step is formal pre-approval. A pre-approval lets you bid at auction or make an offer knowing a lender has already assessed your application in principle.

Pre-approval typically lasts 90 days and gives you a confirmed borrowing limit to work within. It does not guarantee final approval, which comes after a property valuation, but it significantly reduces uncertainty during your property search.

If your readiness assessment reveals any concerns, such as a risk of being declined or debts that need attention, a broker can help you work through them before you apply. A declined application leaves a mark on your credit file. Understanding the common reasons home loans are declined helps you avoid them before you submit.