How Much Can I Borrow for a Home Loan in Australia?

What borrowing power actually is🔗

Borrowing power, also called borrowing capacity, is the maximum amount a lender will approve for a home loan. It is not a fixed number stamped on your forehead: it shifts with your income, your debts, your expenses, and the interest rate environment when you apply.

The central concept is serviceability: can you comfortably afford the repayments after all your other financial commitments? Lenders do not just look at your salary and wave you through, they look at your whole financial picture. That is why two people on the same income can get very different answers. One has a $20,000 credit card limit and a car loan; the other has neither. Same salary, very different borrowing power.

The main factors that determine how much you can borrow🔗

Six things do most of the heavy lifting in a lender's assessment:

• Income. Your base salary usually counts in full. Bonuses, overtime, commission and casual pay are often “shaded” (discounted, say to 80%) because they are less reliable. Rental income is typically shaded too.
• Living expenses. Lenders compare your declared spending against a benchmark called the Household Expenditure Measure (HEM) and use the higher of the two. Understating your expenses does not help.
• Existing debts. Personal loans, car loans, HECS/HELP, buy now pay later, and credit card limits all reduce serviceability.
• Dependants. Each dependant raises your assumed living costs, which lowers how much you can borrow.
• Deposit size and LVR. A bigger deposit means a smaller loan and a lower loan-to-value ratio, and it can help you avoid Lenders Mortgage Insurance (LMI).
• Interest rate. Higher rates mean higher repayments, so you can borrow less. This is why borrowing power shrinks when rates rise.

The serviceability buffer: the one that surprises everyone🔗

Here is the rule that catches most first-time borrowers off guard. APRA (the Australian Prudential Regulation Authority) requires lenders to check whether you could still afford your repayments if rates rose. To do that, lenders add a serviceability buffer of 3 percentage points on top of the actual loan rate. APRA confirmed in November 2024 that this buffer would stay at 3 points.

A simple illustration (not real rates or figures, just the principle): imagine you earn $100,000 and an online calculator suggests you could borrow around $650,000 at 6%. But the lender tests you at 9%. At 9% the repayments are much higher, so your income might only comfortably support around $500,000. The lender approves $500,000, not $650,000. The gap between the calculator and the approval is usually this buffer.

The sneaky ones that cut your borrowing power🔗

Some factors reduce your borrowing power far more than people expect. These three are the usual culprits.

• Credit card limits, not balances. Lenders look at your total credit limit, because you could draw it down at any time. A $15,000 limit is treated as potential $15,000 of debt even if your balance is $0. Two barely-used cards at $10,000 each is $20,000 the lender factors in, which can knock tens of thousands off your borrowing power.
• HECS/HELP debt. The ATO deducts compulsory repayments once you earn above the threshold, and lenders treat those as a committed expense. The higher your income and balance, the bigger the hit.
• Buy now pay later and small commitments. Afterpay, Zip and friends show up on your bank statements, and lenders scrutinise them. A $200 BNPL habit plus subscriptions, a gym membership and a streaming bundle add up to real committed spending.

The good news: the first one is a genuine quick win. Reducing or closing unused credit card limits before you apply is one of the fastest ways to lift your borrowing power.

How to increase your borrowing power🔗

There are concrete things you can do. Some take a few minutes; others take a few months.

• Reduce or close unused credit card limits. The biggest quick win for many people.
• Pay down or clear other debts. Personal loans, car loans and BNPL balances all count.
• Increase your income, and document it. A documented pay rise, a second income, or consistent rental income all help.
• Trim discretionary spending. Lenders read your bank statements, so cleaner statements in the months before you apply help.
• Apply jointly with a partner. Two incomes assessed together generally means higher borrowing power.
• Consider a longer loan term. A 30-year loan has lower monthly repayments than a 25-year one, which can lift the approved amount, though you pay more interest overall.
• Shop around. Lenders calculate serviceability differently, so one lender's “no” can be another's “yes”. A broker can help you find the right fit.
• Grow your deposit. A larger deposit means a smaller, easier-to-service loan and can get you below 80% LVR to avoid LMI.

Borrowing power vs what you should borrow🔗

Here is the thing nobody says loudly enough: your maximum borrowing power is not the same as what you should borrow. Lenders assess a snapshot. They do not know about the renovation you are planning, the baby on the way, or the rough patch your industry is heading into. You are living the whole film; they are grading one frame.

Borrowing the absolute maximum leaves no buffer for rate rises, job loss, or illness. A better mindset is to borrow what is comfortable, not what is possible. Stress-test your own budget before you commit: take the repayment at the actual rate, add 2-3%, and see if you could still manage. If the answer is “only just”, borrow a bit less.

Use a calculator as a starting point, not a promise. ASIC's Moneysmart mortgage calculator gives a free, independent estimate of repayments. For your real assessed figure, talk to a lender or a good mortgage broker, and when you are lining up finance, our home loan comparison guide walks through what to compare. If you are buying your first place, the First Home Guarantee may also help you get in with a smaller deposit.

❓ Frequently asked questions🔗

Keep reading🔗

• How to compare home loans in Australia
• First Home Guarantee: buy with a 5% deposit
• How HECS/HELP repayments actually work
• Glossary: Lenders Mortgage Insurance (LMI)