First home buyer borrowing power: how much you can borrow

Your first home buyer borrowing power is the loan size a lender may be willing to offer you, based on your income, your expenses and your existing debts. There is no single number that applies to everyone. How much you can borrow depends on your circumstances and each lender’s criteria, so two people on the same salary can end up with very different limits.

If you are asking how much you can borrow for your first home, the short answer is that a lender works out the largest repayment you could comfortably manage, then converts that into a loan amount over a set term. The rest of this guide explains what goes into that calculation, how to estimate your own borrowing capacity as a first home buyer, and the steps you can take to give yourself more room.

What borrowing power means for a first home buyer

Borrowing power, sometimes called borrowing capacity, is an estimate of the maximum a lender may lend you. It is not a promise. A lender starts with the income you can prove, subtracts your living expenses and any commitments such as a car loan or credit card limit, and looks at what is left over to service a mortgage.

According to Moneysmart, how much you can borrow is shaped by three main things: your income and existing financial commitments, your house deposit plus any other savings, and your credit score and credit report status. Each lender weighs these differently, which is why a quote from one bank may not match the next.

A useful way to think about it: your deposit decides how much of the purchase price you bring yourself, and your borrowing power decides how much of the rest a lender may cover. Together they set your realistic price range.

What affects how much you can borrow

A lender builds your borrowing capacity from a handful of inputs. Understanding each one shows you where you have control.

• Income. Your salary, and in some cases bonuses, overtime or rental income, form the base. Lenders treat steady income differently from variable income.
• Living expenses. Lenders assess your everyday spending, so a tighter budget in the months before you apply can help.
• Existing debts. Personal loans, car finance, buy-now-pay-later accounts and even unused credit card limits reduce your capacity.
• Deposit size. A larger deposit lowers how much you need to borrow and can change the costs that apply.
• Interest rate and loan term. The rate used to assess you and the length of the loan both change the repayment a given loan amount creates.

Because the interest rate matters so much, Moneysmart suggests a sensible self-test: work out what your repayments would be if interest rates went up by 2 per cent. If the higher figure still fits your budget, you have given yourself breathing room rather than borrowing to your absolute limit.

How your deposit changes the picture

Your deposit and your borrowing power work together, and the deposit also affects your costs. Moneysmart sets a clear benchmark: a great savings goal for a house deposit is 20 per cent of the purchase price, plus enough to cover buying costs.

The 20 per cent figure matters for a specific reason. A 20 per cent deposit will avoid you needing to pay lenders mortgage insurance, often shortened to LMI. Lenders mortgage insurance is a cost that can apply when you borrow with a smaller deposit, and it protects the lender, not you. You can read more in our explainer on What is lenders mortgage insurance and how loan-to-value ratio is worked out in What is lvr first home buyer.

A smaller deposit is not a dead end. Moneysmart notes that first home buyers with a smaller deposit may have an alternative through an Australian Government scheme that supports eligible buyers purchasing their first home. Whether you qualify depends on your circumstances and the scheme’s rules at the time you apply. If a low-deposit path interests you, our guide to Buying with 5 percent deposit walks through what that can look like.

Estimating your own borrowing capacity

You can get a rough sense of your borrowing power before you speak to anyone. A mortgage calculator can help work out how much you may be able to afford to borrow and how much your repayments might be. Moneysmart is clear about the limits of this, though: using a calculator does not guarantee you will be eligible for a loan, and you will need to satisfy your lender’s lending criteria.

Loan term plays a part here too. A shorter loan term, for example 20 years, means higher repayments, but you will pay less in interest over the life of the loan. A longer term lowers each repayment, which can lift the loan amount a budget supports, while increasing total interest. Neither is automatically better; it depends on what you can sustain.

How to improve your borrowing power

If your current estimate falls short of the homes you are looking at, several levers may help. None guarantees a larger loan, because the decision still rests on your circumstances and lender criteria.

Once you have a realistic figure, pre-approval puts a lender’s conditional view of your borrowing power in writing, which helps when you start making offers. See Home loan pre approval first home buyer for how that works. It also pays to understand how your repayments are structured so the loan you take on stays comfortable, which we cover in First home loan repayments.

Frequently asked questions

Talk it through with Finance Lab

Working out your borrowing power on paper is a useful start, but the figure that matters is the one a lender will stand behind for your situation. If you would like a clearer picture of how much you may be able to borrow for your first home, the team at Finance Lab can talk you through it and help you compare your options.