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How much money can I borrow?

When taking out a home loan, everyone’s existing and future financial situations are going to be somewhat unique – so let’s first take a look at what the lending industry thinks before investigating the additional factors that are likely to be applicable to you as an individual.

The lending industry indirectly recommends that people not borrow more than 80% of the property value through the general application of policies which enforce that borrowers pay for Lenders Mortgage Insurance (LMI) in order to be approved for a loan worth more than that.

Effectively, they are saying that buyers should have at least a 20% property deposit saved. A 20% deposit on a $450,000 house is $90,000!

Essentially, lenders are protecting themselves from a situation where:

  • a borrower ‘defaults’ on the mortgage (unable to pay or ‘service’ the loan), forcing the bank to repossess the property AND
  • the value of the property has fallen to be worth less than what’s owed on the mortgage

In this situation, the lender might not be able to fully recover what’s owed to it by selling the repossessed property – resulting in a loss for the lender.

Can’t afford a 20% deposit?

You may still be able to be approved for a home loan with a deposit of under 20% of the property’s value. For many lenders, the minimum required deposit is often 5%.

But there are two things you should consider when applying for a home loan with a deposit under 20%:  

  1. Lender’s mortgage insurance: Typically, borrowers that don’t have a deposit of at least 20% are required to pay for LMI, which can add tens of thousands to the cost of the mortgage, depending on the lender and what loan-to-value ratio (LVR) percentage you have.  
  2. Guarantors: If you can get one of your family members to act as a guarantor, you may be approved for the mortgage without having to pay LMI. To be successful, the family member must be able to demonstrate either their own capacity to repay your loan and be willing to be liable for your home loan if you default on a payment or to put their own property equity forward as collateral.

How much should you borrow for a mortgage?

No matter which path you take with your deposit and securing a loan approval, it’s essential to calculate your personal finances to give you a better idea of just how much you should (not ‘could’) borrow. Here are five things to consider before taking out a mortgage.

1. Household income

When assessing your finances, ask yourself what kind of lifestyle you want. Are you single? Married? Have a baby on the way? Do you like designer shoes or do you eat out regularly? Ask yourself if you’re willing to make sacrifices and if so, where are you going to reduce your spending? Your household income is one of the first things a lender will look at when determining if you’re eligible for a home loan. If you can show a record or budget of your spending habits per week, this can help prove you’ll be able to meet the repayments required.

2. Credit rating

A credit rating, or credit score, is the next thing a lender will look at to determine how much a risk you are as a borrower. Many people don’t ever check their credit rating and are surprised when their application gets refused. It’s a good habit to check your credit rating once a year to make sure you’re either on the right track or working towards improvement.

3. Property price and value

The next thing a lender will assess is the type of property you’re interested in and what purpose you’re buying the property for. Is it an investment property or are you looking to live in the home as an owner-occupier?

Another important thing to consider is the value or potential future value of the property you’re purchasing. Are you buying a house, apartment or land?

These questions will all have an impact on your borrowing power.

4. Home insurance

Home insurance is designed to protect your property from damage caused by events out of your control. As your home is your biggest investment, it’s important you ensure you’re able to afford home insurance before applying for a home loan.

5. Other costs

Similar to home insurance, there are a number of costs (both upfront and ongoing) associated with buying and owning a property. A few of these include stamp duty, LMI (if applicable), home loan establishment fees, legal and inspection costs, council rates, water utility rates and general property maintenance.

Buying a home is a big decision and should not be taken lightly. Assessing your borrowing capacity is just one of the ways to determine how much you can borrow for a home loan, but working out how much you should borrow will always be a personal decision based on a raft of other individual factors including how much risk you can tolerate and how much you are willing to sacrifice to ensure that you can make the most of your valuable property purchase.



Looking for a home loan?

Buying a home or looking to refinance? The table below features home loans
with some of the lowest interest rates on the market for owner occupiers.

Lender

VariableMore details
Online ExclusiveUp To $4K Cashback
  • Immediate cashback upon settlement
  • $2,000 for loans up to $700,000
  • $4,000 for loans over $700,000
Online ExclusiveUp To $4K Cashback

loans.com.au – Variable Basic Cashback Home Loan (Principal and Interest) (LVR < 70%)

  • Immediate cashback upon settlement
  • $2,000 for loans up to $700,000
  • $4,000 for loans over $700,000
VariableMore details
Refinance OnlyApply In Minutes
  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Refinance OnlyApply In Minutes

Unloan – Variable Rate Home Loan – Refinance Only

  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
VariableMore details
Unlimited Redraws
  • No annual fees - None!
  • Get fast pre-approval
  • Unlimited additional repayments free of charge
  • Redraw freely - Access your additional payments when you need them
  • Home loan specialists available today
Unlimited Redraws

ubank – Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No annual fees - None!
  • Get fast pre-approval
  • Unlimited additional repayments free of charge
  • Redraw freely - Access your additional payments when you need them
  • Home loan specialists available today
VariableMore details
Unlimited RedrawsApply In Minutes
  • Low Deposit (<95% LVR) with No LMI required
  • Unlimited Redraw and additional repayments
  • No Application or ongoing fees
Unlimited RedrawsApply In Minutes

Sucasa – Ultra Low Rate (Variable) - <95% LVR - No LMI (New Purchases)

  • Low Deposit (<95% LVR) with No LMI required
  • Unlimited Redraw and additional repayments
  • No Application or ongoing fees
VariableMore details
4.6 Star Customer Ratings
4.6 Star Customer Ratings

loans.com.au – Variable Home Loan (LVR < 90%)

    VariableMore details

    ubank – Neat Variable Home Loan (Principal and Interest) (LVR 70%-80%)

    • Home loan specialists available today
    FixedMore details

    Westpac – Premier Package Fixed Options Home Loan (Principal and Interest) 1 Year (LVR < 70%)

      VariableMore details

      Commonwealth Bank – Wealth Package Variable Home Loan (Principal and Interest) (LVR 70% - 80%)

        VariableMore details

        NAB – Base Variable Home Loan (Principal and Interest) (New Customer)

          FixedMore details

          ANZ – Fixed Rate Home Loan (Principal and Interest) 5 Years (LVR < 80%)

            VariableMore details

            Heritage Bank – Discount Variable Home Loan ($150k+) (LVR < 70%)

              VariableMore details

              P&N Bank – & Basic Home Loan (LVR < 60%)

                FixedMore details

                Newcastle Permanent – Premium Plus Package Fixed Rate Home Loan Special (Principal and Interest) 2 Years

                  FixedMore details

                  Commonwealth Bank – Fixed Rate Home Loan (Principal and Interest) 3 Years

                    FixedMore details

                    HSBC – Package Fixed Rate Home Loan (Principal and Interest) 4 Years (LVR < 80%)

                      FixedMore details

                      IMB Bank – Fixed Rate Home Loan (Principal and Interest) 3 Years (LVR ≤ 80%)

                        FixedMore details

                        ING – Fixed Rate Home Loan 5 Years (LVR < 80%)

                          FixedMore details

                          Newcastle Permanent – Fixed Rate Home Loan (Principal and Interest) 5 Years

                            FixedMore details

                            Newcastle Permanent – Premium Plus Package Fixed Rate Home Loan (Principal and Interest) 1 Year

                              FixedMore details

                              ANZ – Fixed Rate Home Loan (Principal and Interest) 2 Years (LVR > 80%)

                                Important Information and Comparison Rate Warning

                                Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of February 27, 2024. View disclaimer.