Q: What are the factors that determine the maximum amount of home loan you can borrow?
- Income and Expenses
The first thing lenders look at is your income and expenses. They’ll want to make sure you have enough income to make your repayments comfortably. They’ll also take into account your other expenses, such as credit card repayments, car loans, and living expenses.
- Credit Score
Your credit score is a number that indicates how reliable you are as a borrower. The higher your credit score, the more likely you are to be approved for a home loan, and the higher the maximum amount you can borrow.
- Loan to Value Ratio (LVR)
The loan to value ratio is the amount of the loan compared to the value of the property you’re buying. For example, if you’re buying a property for $500,000 and you’re borrowing $400,000, your LVR is 80%. Lenders prefer lower LVRs as they pose less risk. Generally, the maximum LVR that lenders will allow is 95%, which means you’ll need a deposit of at least 5%.
- Employment History
Lenders prefer borrowers who have a stable employment history. They’ll look at how long you’ve been employed in your current job, and how stable your income is. If you’re self-employed, you’ll need to provide more documentation to prove your income and that your business is stable.
- Savings History
Lenders will want to see that you have a good savings history. They’ll want to see that you’ve saved regularly, and that you have enough savings to cover any unexpected expenses that may arise.