The amount you can borrow for a home loan will have an impact on the type of properties you look at, as well as the suburbs you consider.
How much you can borrow for a home loan is determined by a number of things.
Here’s a breakdown of what might determine how much you can borrow.
Income and expenses
Your income is a good guide when figuring out how much you can afford to repay on your loan every month. Look at your living expenses and financial commitments to assess how much of your salary you have left over to cover home loan repayments. A sound budget will give you confidence that you won’t be overstretching yourself.
The bigger your deposit, the smaller your loan will be and the less interest you’ll have to pay. Ideally, you should save as much as possible before buying a home. The minimum required deposit is 10%, but aim for 20% if possible. If you’re borrowing more than 80%1 of the property value, you’ll need to take out Lenders’ Mortgage Insurance or Low Deposit Premium.
There are some other upfront costs outside the deposit, including legal fees, stamp duty, moving costs and insurances. Make sure to account for these when creating a savings plan.
Saving history and credit rating
Saving for a deposit is a great way to show that you’ll be able to manage home loan repayments. Three months or more is a good demonstration of your saving abilities.
The lender will also look at your credit rating, which is based on your borrowing and repayment history, including how often you’ve shopped around for credit. There are several credit reporting agencies you can use to check your rating online.
Support for first home buyers
The First Home Owner Grant is a government scheme that provides a one-off payment to first home owners. The grant amount, eligibility criteria and payment details of a First Home Owner Grant all vary among the states and territories. The grant is usually paid at the time of property settlement to your home loan lender and applied directly to your home loan.
You can check with your home loan lender when you apply or you can find out specific details for each region at the Federal Government’s First Home Owner Grant website.
Type and length of home loan
The type of home loan and its corresponding interest rate will affect your borrowing power. The lower the interest rate, the lower your minimum repayments will be. Stretching your loan out over a longer term might mean you can borrow more, but will increase the total amount of interest you will end up paying by the end of the loan period.
The price of the property
As part of your home loan application, the lender may do a valuation of the property to determine how much they are willing to lend.
1. You might have to take out Lenders’ Mortgage Insurance or Low Deposit Premium if you borrow more than 70% of the property value in certain postcodes. For more details please visit one of our branches or call us on 132221.