Before you fall in love with a property, make an offer, call an agent or start mapping out your next investment move, there’s one question worth answering first:
What can you actually borrow, based on your current income, expenses, debts, deposit, structure and lender options?
Borrowing capacity is not one fixed number
A lot of buyers assume borrowing capacity is simple. You earn a certain amount, you have a certain deposit, and the bank tells you what you can borrow. In reality, it is more nuanced than that.
Different lenders can assess the same person in different ways. One lender may be comfortable with your income type, while another may shade it heavily. One lender may treat your existing debts one way, while another takes a stricter view. Some may be more suitable for self-employed applicants, investors, company structures or people with multiple properties.
That is why two people with similar incomes can end up with very different borrowing outcomes. It is also why a borrowing capacity check is not just about chasing the biggest number. It is about understanding what is realistic, sustainable and aligned with your broader plans.
What lenders usually look at
When a lender assesses your borrowing capacity, they are trying to understand whether you can afford the loan now and into the future.
The key factors usually include:
- Your income
- Your employment type
- Your living expenses
- Your existing debts
- Your credit limits
- Your deposit or available equity
- Your number of dependants
- Your current loan repayments
- The type of property you are buying
- Whether the loan is for a home or investment property
- Your overall financial position
For some clients, this is relatively straightforward. For others, especially business owners, investors, trust borrowers, company directors or people with irregular income, the way the application is presented can make a significant difference.
Income is not always treated equally
This is one of the biggest surprises for borrowers. You may know what you earn, but that does not mean every lender will assess it the same way.
For example:
- A PAYG salary may be treated differently to bonus or commission income.
- Self-employed income may require additional financials.
- Overtime may or may not be accepted depending on history and role.
- Rental income may be shaded.
- Trust or company income may need to be properly explained.
- Recently changed income can create additional questions.
This is where a broker can add real value. Not by trying to “game” the system, but by understanding which lenders are more likely to understand your situation properly.
Your credit cards may be costing you more than you think
Even if you pay your credit card off every month, lenders may still assess the limit as a potential liability. That means a $20,000 credit card limit can reduce your borrowing capacity, even if the balance is currently low or zero.
The same applies to:
- Personal loans
- Car loans
- HECS/HELP debt
- Buy now, pay later facilities
- Store cards
- Existing investment loans
- Unused credit limits
This does not mean you need to cancel everything tomorrow. But it does mean you should understand what is helping your application and what might be holding it back.
Your deposit is only part of the picture
A strong deposit helps, but it is not the whole story. A borrower may have a large deposit but limited income, high expenses or existing debt. Another borrower may have strong income but a smaller deposit. A third may have equity in an existing property but limited usable borrowing capacity.
The question is not simply, “How much money do I have?”, it is “How much usable deposit or equity do I have, and can I service the loan that goes with it?”. That is the part worth checking early.
Online calculators are useful, but they are not the final answer
Online calculators can be a helpful starting point as they can give you a rough idea of repayments or borrowing range. Even ASIC’s Moneysmart notes that mortgage calculators can help people estimate repayments, borrowing amounts and ways to repay a home loan sooner, however, calculators are not a substitute for lender assessment.
They usually cannot properly account for:
- complex income
- multiple entities
- trust distributions
- company structures
- investment debt
- recent job changes
- lender-specific policies
- unusual property types
- future plans
So make sure to use them as a guide, not a decision-making tool.
When should you check your borrowing capacity?
Ideally, before you do any of the following:
- Start attending auctions
- Make an offer on a property
- Refinance
- Buy an investment property
- Use equity
- Change jobs
- Lodge business financials
- Restructure debt
- Sell an asset
- Commit to a major expense
A borrowing capacity check is especially important if your financial position has changed in the last 6-12 months. That could include a new job, new baby, new business, new loan, new income level, investment property purchase, rate change or shift in household expenses.
Why does this matters before you speak to agents?
Property decisions can move quickly. If you find the right place and only then start working out your finance, you may already be under pressure. That is when people rush, make assumptions or get emotionally attached to a property before knowing whether the numbers work.
It is not just about borrowing more
At Strategic Brokers, we do not see borrowing capacity as a race to the highest possible number. Sometimes the right advice is to borrow less. Sometimes it is to restructure first. Sometimes it is to wait. Sometimes it is to use a different lender. Sometimes it is to look at your broader plan before taking the next step.
Good borrowing capacity review should help you understand:
- What you may be able to borrow
- What could limit you
- What you may need to clean up
- Which lender pathways may suit your situation
- Whether your current structure supports your future goals
Because the real question is not just, “Can I get the loan?”, it’s “Does this loan support where I am trying to go?”
Thinking about buying, refinancing or investing?
Before you make your next move, it is worth getting a proper sense-check on your borrowing position. At Strategic Brokers, we help clients understand their borrowing capacity, lender options and overall finance strategy before they get too far down the property path. Whether you are buying your first home, upgrading, investing, refinancing or trying to understand what is possible, the first step is getting clear on the numbers.
Want a borrowing capacity reality check?
Get in touch with the Strategic Brokers team.
