Before you start house-hunting, it’s important to know how much you can borrow for your first home loan. The amount you can borrow will depend on a range of factors, including your income, expenses, credit history, and the lender’s policies.
Q: What are the factors to know how much I can borrow for my first home loan?
A:
- Income – Your income is a crucial factor when determining how much you can borrow for your first home loan. Lenders will usually allow you to borrow up to four or five times your gross annual income. For example, if your gross annual income is $80,000, you may be able to borrow up to $400,000.
- Expenses – In addition to your income, lenders will also look at your expenses when assessing your borrowing capacity. This includes your regular living expenses such as rent, bills, food, and transport costs. Lenders will typically use a benchmark for living expenses and deduct this from your income to determine your disposable income. Your disposable income is then used to calculate how much you can afford to borrow.
- Credit history – Your credit history is an important factor when applying for a home loan. Lenders will typically look at your credit report and assess your ability to manage debt. If you have a good credit history and have made all your repayments on time, you may be able to borrow more. However, if you have a poor credit history, this may impact the amount you can borrow or the interest rate you’re offered.
- Lender policies – Different lenders have different policies when it comes to borrowing capacity. Some lenders may be more conservative and only allow you to borrow up to four times your gross annual income, while others may be more lenient and allow you to borrow up to five times your income. It’s important to shop around and compare different lenders to find the best deal for your circumstances.
- Deposit – Your deposit also plays a role in how much you can borrow for your first home loan. The larger your deposit, the less you will need to borrow, and the more you may be able to borrow. As mentioned in our previous blog post, lenders in Australia traditionally require a deposit of at least 20% of the purchase price of the property. However, many lenders now offer home loans with smaller deposit requirements, which means you may be able to borrow more even if you don’t have a large deposit.
In conclusion, how much you can borrow for your first home loan in Australia depends on a range of factors, including your income, expenses, credit history, and the lender’s policies. It’s important to speak to a mortgage broker or lender to determine your borrowing capacity and shop around to find the best deal for your circumstances. Remember to factor in additional costs such as stamp duty, legal fees, and home insurance when calculating how much you can afford to borrow.
