How much can I actually borrow? A straight-talking guide to borrowing capacity

You've punched your income into an online calculator and got back a number with a lot of zeros. That's great — but it's not the full picture. Lenders assess borrowing capacity through a far more detailed lens, and understanding what they look for is the first step to getting the best possible outcome.

What banks are actually measuring

When a bank or lender calculates how much you can borrow, they're not just looking at your salary. They're running a "serviceability" assessment — essentially asking: if rates went up, could you still meet your repayments?

Australian lenders are required to assess your loan against a buffer rate — typically your actual rate plus 3% (the APRA serviceability buffer). That means even if you're borrowing at 6%, the bank tests your ability to repay at around 9%. This is by design, and it's one of the key reasons online calculators often overestimate what you can actually get approved for.

Income: it's more nuanced than you think

Your gross salary is the starting point — but lenders look at stable, ongoing income. That means:

• Overtime and bonuses may only be counted at 50–80% (or not at all, depending on the lender)
• Casual or contract income usually requires at least 12 months history to be counted
• Rental income from investment properties is typically assessed at 70–80% to account for vacancy periods
• Self-employed income is assessed over two years of tax returns (more on this in our self-employed guide)

Liabilities: the silent borrowing killers

Every existing debt reduces how much you can borrow. The main culprits:

• Credit cards — lenders assess your capacity to repay the full limit each month, not just your actual balance. A $20,000 credit card limit can reduce your borrowing capacity by $80,000–100,000 even if you've never used it.
• Car loans and personal loans — assessed at the actual repayment amount
• HECS/HELP debt — repayments are factored into living expenses, reducing serviceability
• Buy Now Pay Later — increasingly flagged by lenders in living expense assessments

Living expenses: where the numbers get real

Post-2019 reforms (HEM changes) mean lenders now scrutinise your actual spending, not just generic benchmarks. They'll often ask for 3–6 months of bank statements. Subscriptions, eating out, online shopping — it all gets reviewed.

This doesn't mean you need to live like a monk before applying. But it does mean that a clear, consistent spending picture works in your favour.

How to improve your borrowing capacity

There are practical levers you can pull before applying:

• Close unused credit cards — or significantly reduce limits
• Pay down or eliminate personal debt
• Avoid taking on new debt in the 6 months before applying
• Show consistent, stable income — lenders love 12+ months with the same employer
• Avoid large unexplained cash deposits that can't be sourced

Why lenders vary so much

Different lenders apply different methodologies, buffers, and expense benchmarks. One lender might approve $800,000 where another approves $950,000 for the same borrower. This is exactly where working with a broker adds real value — we know which lenders will look most favourably on your situation.

A note on deposit and LVR

How much you can borrow is also shaped by your deposit size. If you're borrowing more than 80% of the property value (that is, your Loan-to-Value Ratio or LVR is above 80%), you'll typically need to pay Lenders Mortgage Insurance (LMI) — which adds to the cost of your loan. Some lenders offer LMI waivers for professionals in certain fields.

The good news: a 10% deposit is often enough to get into the market with the right lender, especially for first home buyers who may also qualify for government scheme assistance like the First Home Guarantee.

The bottom line

Borrowing capacity is a moving target — it shifts based on your income, debts, expenses, deposit, and which lender you approach. An online calculator is a useful starting point, but a 30-minute conversation with a broker will give you a far more accurate picture of where you actually stand and what steps you can take to improve your position.