Home Loan Borrowing Power: Calculate Your Borrowing Capacity
“How much can I borrow?” It’s one of the most important questions for a first home buyer, but it’s difficult to get an accurate answer. Why? Because borrowing power has changed dramatically over the past few years. According to Loanscape, a family that could have borrowed $785,000 in June 2021 would only be able to borrow $583,500 in March 2023. So, how can you get an accurate assessment of your borrowing capacity?
What is Borrowing Power or Borrowing Capacity?
Your borrowing capacity is the maximum amount of money a lender will be willing to loan you. The borrowing power of an individual will be determined by factors including income, credit history, expenses, current interest rates and personal debt.
Now, why is calculating borrowing capacity so important? Because until you know how much you can borrow, you won’t know how much you can spend. An accurate estimate of your borrowing power will help you set a realistic budget for your property purchase. It will also help you assess your future obligations to ensure you can manage your monthly repayments.
How Much Can I Borrow?
When considering how much you can borrow, you’ll need to include:
- Current income and employment stability
- Existing financial commitments (loans, credit cards, living expenses, HECS-HELP debt, etc.)
- Credit history
- Length of the loan term
- Current interest rates
- Size of your deposit
- Type of loan (fixed-rate or variable-rate)
- Government lending standards and restrictions
These factors will help establish your debt-to-income ratio, a metric that lenders use to assess your overall “financial health”. The ratio is calculated by dividing your total monthly debt repayments by your gross monthly income (expressed as a percentage). The lower your ratio, the more you’ll be able to borrow.
Tips to Increase Borrowing Power
If your borrowing capacity isn’t quite where you’d like it to be, there are practical ways to improve it. Here are some things you can do:
Improve Your Credit Score
Lenders rely heavily on credit scores when they determine loan eligibility. Try to pay your bills on time, reduce credit card balances and avoid new credit applications. Doing these can help boost your score and make you a more attractive borrower.
Reduce Existing Debts
Pay down personal loans, credit card balances or other high-interest debts. Consolidate loans so you can also lower your monthly outgoings. Such a move can free up more income for repayments.
Save for a Larger Deposit
A bigger deposit reduces the Loan-to-Value Ratio (LVR). This can open up more favorable loan terms and potentially higher borrowing limits.
Show Strong Financial Management
Demonstrate consistent savings habits and reduce discretionary spending in the months leading up to your application. Doing this can improve how lenders view your financial discipline.
Increase Your Income
Explore additional income sources to increase your borrowing capacity. Side hustles or combining incomes with a partner can significantly enhance your borrowing power.
Using A Borrowing Power Calculator

An online borrowing power calculator can be handy for estimating how much you can borrow. It allows you to input basic details, such as whether it’s a joint application, number of dependents, interest rate, loan term, net income, average expenses and your credit limit. The calculators then use this information to estimate your borrowing capacity.
While this can be a useful gauge when initially considering your options, the information provided by an online borrowing power calculator is general only. It won’t take all of your circumstances into consideration. When it comes to seriously calculating your borrowing power, talk to a mortgage broker.
Mistakes to Avoid When Calculating Borrowing Power
Underestimating Costs
Beyond the property price, there are hidden costs to account for. These include stamp duty, legal fees, inspections and moving expenses. Failing to budget for these can lead to financial stress.
Ignoring Interest Rate Buffer
Lenders apply a 3% buffer to ensure you can handle potential rate rises. Borrowers should also prepare for fluctuating repayments to avoid future strain.
Overstretching at Auctions
Getting caught up in the excitement of bidding can lead to over-borrowing. Even a small overbid can result in significant additional costs over the life of a loan.
Failing to Plan for Life Changes
Major events like having children, career changes, or unforeseen emergencies can impact your ability to repay a loan. Always leave a financial buffer for these situations.
Skipping Professional Guidance
Many borrowers attempt to navigate the process alone. A mortgage broker can provide invaluable advice, find suitable lenders and help you avoid common errors.
Government Programs to Boost Borrowing Capacity
Aside from the advice given above, there are some government programs you can turn towards when you’re planning on buying a home. The Australian Government has introduced several schemes to help individuals and families purchase homes with less upfront financial strain. Here are some of the most impactful programs you can look into:
First Home Guarantee (Part of the Home Guarantee Scheme)
This program allows first-home buyers to purchase a property with as little as a 5% deposit, without the need for Lenders Mortgage Insurance (LMI). By reducing upfront costs, buyers can allocate more funds toward their property purchase. This effectively increases their borrowing capacity.
Family Home Guarantee
Specifically designed for single parents with dependent children, this initiative allows eligible buyers to secure a home loan with just a 2% deposit. This can make homeownership achievable for single-income households.
Regional First Home Buyer Guarantee
For those looking to buy in regional areas, this scheme reduces deposit requirements and upfront costs. This makes it easier to secure a loan for homes outside metropolitan areas.
First Home Super Saver Scheme (FHSSS)
This program allows first-home buyers to use voluntary superannuation contributions for their home deposit. By leveraging tax-effective savings, buyers can increase the funds available for their home purchase.
These programs can significantly improve affordability, but note that eligibility criteria apply. Talking to a mortgage broker or government resource can help determine which schemes suit your situation.
How Much Can I Borrow? A Case Study
Sarah is planning to buy her first home. She has a solid income, but her borrowing capacity is also determined by her car loan and monthly expenses. Sarah’s careful budgeting increases her borrowing power, but her credit score is low (thanks to a few missed car payments).
By improving her credit score, Sarah will gain better loan terms and increase her power. Understanding and optimising these factors in advance will significantly help Sarah on her journey to homeownership.
A Broker Can Help Calculate Your Borrowing Power
“How much can I borrow?” It’s an important question. Calculating borrowing power will help you establish a realistic budget and make plans for the future. But it can be difficult to figure this out on your own. At North Brisbane Home Loans, we’re committed to helping first home buyers achieve their home ownership goals.
Our online calculators can point you in the right direction, but remember, they’re only a guide. For an accurate assessment of your borrowing capacity, book an appointment with North Brisbane Home Loans.

Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.