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Thinking of buying a home and not sure how much you can borrow from banks or home loan lenders?
Why not use the best borrowing power calculator to calculate your borrowing power capacity as it can help you organise the necessary paper-work, before approaching any lenders, thus saving lots of time.
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Working out your borrowing power capacity for a home loan is quite detailed and sometimes a lengthy process to understand.
However, it is vital you properly understand how lenders analyse your financial and personal situation to establish your home loan eligibility, before deciding to lend money to buy a property.
As your income is assessed differently from one home loan lender to another, use the borrowing power calculators listed below from some of the major home loan lenders in Australia.
[table “” not found /]Calculating your borrowing power or borrowing capacity varies from one lender to another as each home loan lender has their own unique formula to work out the borrowing power also known as your home loan serviceability.
When a mortgage lender use their own borrowing power calculator, your income is assessed differently from one home loan lender to another.
Here are some financial aspects your potential home loan lender will want to analyse:
There are also other factors included within the borrowing power calculation to ensure your ability to service the loan completely.
Some of these factors will reduce your actual income used to work out the borrowing power or to add margins on top of the interest rates used to work out the monthly repayments, or in some cases both.
When lenders assess your ability to repay the full home loan with applicable interest rates, they need to make sure it is for the purpose of ensuring long term affordability over the entire term of your loan, not just today.
If you have been able to save a large deposit to buy your home, a home loan lender or bank will more likely lend you more. As a general rule, most mortgage lenders will generally only let you borrow less than 90% of a property’s value. For example, if a property costs $800,000 and you have a $80,000 the deposit, the home loan lender in Australia will only lend you $720,000.
In most situations when you have a guarantor or equity on the property, you can borrow 100% of the purchase price. Otherwise, you can only borrow a maximum of 90% of the property value.
A ballpark calculation will give an estimate of $2000 per month which is equal to 30% of $80,000 annual gross income divided by 12. With a mortgage at 3% p.a. this equates to a loan amount of $450,000. A 10% deposit towards the home loan will equates to $45,000 and this will make the maximum affordable property price to be $495,000. Please note, this is an estimate. Please talk to a good mortgage broker in your area to give an accurate amount you are able to borrow.
The equity you have in an existing property or amount of savings can substantially improve your borrowing power and it’s a big advantage for those purchasing a second home or an investment property.
If you have held for a period of time, then shares, cash, money saved in term deposit, equity in a home and inheritance can all count as genuine savings.
Most home loan lenders place a large emphasis on the LVR (Loan to Value Ratio) when assessing your mortgage loan application. The home loan consider a person with the lower LVR, the lower is the risk to the bank. In most circumstances, the home loan lenders consider loans with a LVR of over 80% to be a higher risk.
The bigger the deposit you have towards buying a property, the better the home loan deals you will be able to get such as the lower interest rates. Home loan lenders in Australia often have bands in which rates become cheaper as the deposit becomes bigger.
The short answer is, yes, however your current property becomes a security on the new debt. By using the equity in your currently owned property allows you to buy a second property with no cash deposit. Please consult a qualified financial advisor or mortgage broker to learn more about using your equity towards buying another property.
© 2021 Borrowing Power Calculator