Your Borrowing Power

Q. How does a lender work out what your borrowing power is? I am looking to take out a home loan, but I’m not sure what information a lender will look at when they are assessing my application.

A. When a lender calculates your borrowing power, they look at your income and financial commitments and then calculate if you have enough money left over to afford the mortgage repayments. Some factors they look at include: income from your job, share investments, property investments and any family tax income. They look at financial commitments such as credit cards, other loans, other mortgages and HECS debt. They will also look at the total number of applicants and dependants to calculate your average living expenses.

Some lenders do have calculators available on their website which can give you an estimate of how much you can borrow. However, in order to get an accurate loan amount, you will need to speak with the lender. You may have special considerations that the calculator doesn’t take into account that could affect your borrowing power. Also, if the loan amount is not as much as you want, they can give you an idea of what needs to change in order to improve your borrowing power.