[3/4] What is your borrowing capacity?

Your borrowing capacity is an assessment of the maximum loan amount you may be able to borrow. It is calculated based on your net income minus expenses.


What affects your borrowing capacity?

Every lender uses the Household Expenditure Measure to estimate your monthly living expenses. This is based on necessary costs such as food, utilities, transport, childcare costs and communication.

It also takes into account discretionary spending such as takeaway food, holidays and entertainment. Your specific HEM estimate is based on the number of adults and children in your family as well as your postcode. The bigger the family, the higher the HEM estimate.

In addition to the HEM estimate, there are any other commitments you have such as personal loans, credit cards, car leases, existing mortgages or rent payments.

Your borrowing capacity is then based on how much income remains after the HEM expenses and your other commitments are taken into account.
How much is your borrowing capacity?

As a very rough estimate, your borrowing capacity should be approximately 6 times your income. For example, if you earn $100,000 per year, your borrowing capacity would be around $600,000. This shortcut method becomes less accurate if you have existing loans.

It’s also important to note that every lender is different. Some are more strict and others less so. So you’ll need to speak with a good mortgage broker about options that are unique to you and your situation.

Are you ready to start investing in property? Register for our next live webinar or get in touch for a free chat with our team.
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