Calculate Your Borrowing Capacity

A larger deposit increases the purchase price you can reach but does not directly increase your borrowing capacity. Capacity is determined by your income, expenses and debts, not your deposit. If your capacity is $400,000 and you have a $50,000 deposit, you can purchase up to $450,000. A $100,000 deposit lets you purchase $500,000, but the loan amount approved is still capped at $400,000. The deposit fills the gap between capacity and purchase price, and reduces or eliminates lenders mortgage insurance (LMI) when it exceeds 20% of the purchase price.

Credit bureaus (Equifax, Experian, Illion) update monthly, typically 30 to 60 days after an account is closed. Close the card, obtain written confirmation from the provider, then wait at least 45 days before applying for a home loan. You can request a free copy of your credit report from each bureau to confirm the closure has been recorded. Applying too soon means the lender’s automated system still sees the old limit and applies the full serviceability deduction, costing you $50,000 to $70,000 per $10,000 of limit.

Yes. A $400 per month car loan repayment reduces your borrowing capacity by roughly $80,000 to $100,000 depending on the assessment rate. Pay out the loan before applying and that $400 per month is added back to your net surplus, restoring the capacity. This is why many buyers use savings to clear car loans or personal loans rather than adding the savings to their deposit. The capacity gain often exceeds the deposit reduction, especially when the loan interest rate is higher than the home loan rate.

Yes, if you are applying for the loan jointly. Both incomes are combined, but so are both sets of liabilities and living expenses. If one partner has poor credit history, high debts, or irregular income, it can be better for the other partner to apply solo if their income alone supports the required capacity. De facto partners are treated the same as married couples for lending purposes. Both applicants are jointly liable for the full loan amount regardless of who earns what.

The lender uses the higher figure. HEM is a floor, not a ceiling. If you declare $2,000 per month in living costs and HEM for your household is $3,400, the lender assesses $3,400. Declaring artificially low expenses does not improve your capacity, it just raises red flags and can trigger please explain queries or requests for 90 days of bank statements to verify spending. Always declare realistic expenses at or above the HEM benchmark for your household size.

Shortening the loan term increases the monthly repayment, which can reduce your borrowing capacity under a pure serviceability test because the monthly surplus is consumed faster. However, some lenders view a 25 year or 20 year term as lower risk and may apply slightly more favourable shading to variable income or discretionary expenses, which can offset the repayment increase. In practice, most buyers maximise capacity by choosing the longest term available (30 years) to keep the monthly test repayment as low as possible, then make extra repayments voluntarily once the loan settles.

Most lenders exclude or heavily discount rental income from a property you are vacating for the first 3 to 6 months, treating the transition period as uncommitted. If you are buying before tenanting the old property, capacity is assessed without that rental income. If the property is already tenanted with a signed lease, lenders include 80% of the gross rent (20% haircut for vacancy and maintenance). Your existing mortgage on the old property is re-assessed at the new buffer rate, not the rate you are currently paying, which often results in a net negative impact on capacity even after the rental income is included.

Refinancing triggers a full re-assessment under current rules. The lender tests your capacity at the new rate plus the 3 percentage point buffer, applies the current HEM benchmarks (which have risen 10% to 12% since 2021), and re-assesses all liabilities at current test rates. A loan approved in 2019 at 3.5% might not re-approve in 2024 at 6.5% even with identical income and expenses, because the buffer and HEM increases have tightened serviceability by 15% to 25%. If you are refinancing with the same lender for a better rate, they typically use your current loan balance as the starting point and do not re-assess capacity unless you are increasing the loan amount. Switching lenders always triggers full re-assessment.

HELP repayments are calculated as a percentage of your taxable income (currently 1% to 10% depending on income tier) rather than a fixed monthly amount. A $40,000 HELP debt on an $80,000 income is roughly $2,400 per year or $200 per month, which reduces capacity by around $40,000 at a 9% assessment rate. This is significantly less impact than a $40,000 car loan, which would be assessed at around $800 per month and reduce capacity by $160,000. HELP debt does not appear on your credit file and cannot be paid off early to improve capacity in the short term, but it does reduce your net take home income in the lender’s assessment.

Self-employed borrowers are assessed on the average of the last two financial years’ taxable income after business expenses, not gross revenue. Lenders require two years of full financials, tax returns, and often a letter from your accountant. Business expenses and depreciation reduce your assessable income, which is why many self-employed buyers have lower borrowing capacity than PAYG employees earning the same gross amount. If you are planning to apply for a home loan within the next 12 to 24 months, speak to your accountant about structuring your tax return to maximise taxable income (minimise deductions) in the years leading up to the application, even if it means paying slightly more tax in the short term.

Ongoing Centrelink payments such as Age Pension, Disability Support Pension, and Carer Payment are included at 100% of their value because they are legislated and permanent. Family Tax Benefit Part A and Part B are also included by most lenders. Temporary payments (JobSeeker, parenting payment with an end date) are typically excluded or heavily discounted. Child support received under a legally enforceable agreement or court order is included at 100%. Child support paid is deducted as a monthly expense.

HEM adds roughly $600 to $800 per month per dependent to your minimum living expenses, on top of any childcare costs you have already declared. A household with two children will see HEM rise by $1,200 to $1,600 per month compared to a household with no dependents, which reduces borrowing capacity by $240,000 to $320,000 at a 9% assessment rate. This is on top of the actual cost of raising the child; lenders effectively double count the expense by applying both your declared childcare/school costs and the HEM per child overlay.