How Much Can I Borrow for a Home Loan?

Understanding Your Borrowing Capacity

One of the first questions we hear from clients is simply, “How much can I borrow?” The answer is rarely a single number because it depends entirely on the “serviceability assessment” lenders use to stress-test your finances.

How Lenders Calculate Borrowing Power

Lenders use a specific formula to calculate your “Uncommitted Monthly Income” (UMI). This process determines if you have enough surplus cash to service a loan at an interest rate significantly higher than what you actually pay.

1. Assessing Your Income (It’s Not Just Your Salary)

We find that many applicants are surprised to learn that not every dollar they earn counts toward their borrowing power. Lenders apply a technique called “shading” to variable income sources to account for potential fluctuations.

Standard Pay (PAYG):

• Base Salary: 100% is typically accepted.
• Overtime & Penalties: Most lenders accept only 80% of this income.
• Bonuses & Commissions: Lenders are conservative here, often using only 50% to 80% of the two-year average.
• Car Allowances: These are generally accepted at 100% but are taxable.

Self-Employment:

• Standard approach: Lenders usually average your taxable income over the last two years.
• The “Add-Back” Strategy: We can often help business owners add back non-cash expenses like depreciation or one-off purchases to increase assessable income.
• ABN History: Most banks require your ABN to be registered for at least two years.

Other Income Sources:

• Rental Income: Banks typically use only 80% of rent to account for vacancies and maintenance costs.
• Government Payments: Family Tax Benefit Part A and B are widely accepted, but JobSeeker is generally not.

2. Calculating Your Expenses (The HEM Benchmark)

Lenders do not simply take your word for how much you spend on groceries. They compare your declared expenses against the Household Expenditure Measure (HEM).

This benchmark assumes a basic level of spending based on your location, income band, and family size.

• The Rule: Lenders use the higher of your actual declared expenses or the HEM figure.
• The Reality: For a family of four in 2026, the HEM can easily exceed $4,500 per month for higher-income households.
• The Trap: If you underestimate your living costs, the lender will default to the HEM; if you overestimate, they will use your higher figure.

3. Assessing Existing Debts

Every dollar of debt you currently hold reduces your borrowing capacity significantly.

Debt Type	How It Is Assessed	Impact on Loan Amount
Credit Cards	3% to 3.8% of the limit (not the balance)	A $10k limit can reduce borrowing power by ~$50k
HECS/HELP	Percentage of gross income (tiered)	Reduces net monthly income
Personal/Car Loans	Actual monthly repayment	Reduces borrowing power dollar-for-dollar
Buy Now Pay Later	Treated as a liability	Many lenders require closure before approval

4. The Serviceability Buffer (The “Stress Test”)

APRA (the banking regulator) currently mandates that banks assess your ability to repay the loan at an interest rate at least 3% higher than the actual product rate.

This means if you apply for a loan with a 6.4% interest rate, the bank calculates your ability to repay as if the rate were 9.4%. This buffer is non-negotiable for most major banks and is designed to protect you if rates rise.

5. The New Debt-to-Income (DTI) Cap

Starting in February 2026, a critical new rule from APRA has changed the landscape for investors and high-income earners.

Banks must now strictly limit the number of new loans they write where the borrower’s total Debt-to-Income (DTI) ratio is 6 times or higher. If your total debt exceeds 6 times your gross income, many major lenders will now automatically decline the application, regardless of your monthly surplus.

Factors That Affect Your Borrowing Power

Positive Factors

You can actively improve your position by focusing on these elements:

• Stable Employment: Being in the same role for 6-12 months scores highly.
• Genuine Savings: A pattern of saving over 3-6 months demonstrates discipline.
• Clean Credit Score: A score above 700 (Equifax) unlocks better tiers of lenders.
• Lower Credit Limits: Reducing limits on cards you don’t use.

Negative Factors

We often see applications slowed down by these red flags:

• High DTI Ratio: Total debts exceeding 6x your income.
• Gambling Transactions: Regular betting on bank statements is a major warning sign.
• Payday Loans: Even one recent payday loan can cause an instant decline with Tier 1 banks.
• Excessive Inquiries: Applying for multiple loans in a short period damages your credit score.

Real Example: Borrowing Capacity in Action

Let’s look at a realistic scenario using 2026 assessment rates to see how the numbers stack up.

The Borrowers:

• Couple with a combined income of $160,000.
• Two dependent children.
• $15,000 car loan ($450/month repayment).
• $10,000 credit card limit (zero balance).

The Bank’s Calculation:

• Gross Monthly Income: $13,333.
• Less Tax (Estimated): -$3,200.
• Less HEM Expenses (Family of 4): -$4,400.
• Less Car Loan: -$450.
• Less Credit Card (3.8% of limit): -$380.
• Surplus Available for Mortgage: ~$4,903.

The Result: At a stress-test rate of 9.4% (6.4% actual rate + 3% buffer), this surplus supports a loan of approximately $580,000.

Note: Without the car loan and credit card, their borrowing capacity could jump to over $680,000.

The Problem with Online Calculators

Online tools are useful for a quick check, but they are often dangerously inaccurate for serious planning.

Most calculators assume a generic expenditure level and fail to apply specific lender policies like “shading” on overtime or the new DTI caps. A calculator might tell you that you can borrow $800,000 because it ignores your HECS debt or calculates your bonus at 100%.

Real borrowing power is determined by credit policy, not just mathematics. Our home loans service matches you with the right lender for your specific situation.

Why Different Lenders Offer Different Amounts

We work with over 30 lenders, and the variance in what they will lend you can be massive—sometimes a difference of $100,000 or more.

• Tier 1 (Major Banks): stricter on DTI ratios and living expenses.
• Tier 2 (Regional/Second Tier): Often more generous with overtime, bonuses, and rental income.
• Specialist Lenders: May accept 100% of casual income or listen to “common sense” explanations for business expenses.

Maximising Your Borrowing Power

If the number isn’t where you need it to be, there are proven strategies to improve it.

Immediate Actions

1. Slash Credit Card Limits: Closing a $10,000 card can add roughly $50,000 to your borrowing power.
2. Consolidate Personal Debt: Rolling a car loan into the mortgage (if equity allows) lowers the required monthly repayment significantly.
3. Clean Up Bank Statements: Stop all “Buy Now Pay Later” usage at least 3 months before applying.

Strategic Planning

1. Wait for the Financial Year: If you are self-employed, a strong current year tax return can replace a weaker previous year.
2. Opt for a Longer Term: extending the loan term from 25 to 30 years lowers monthly repayments, which technically increases serviceability.
3. Exit Strategy for HECS: Paying off a small remaining HECS balance can instantly boost net income.

Borrowing Power for Gladstone Buyers

Local market conditions in Central Queensland create unique opportunities and challenges.

Mining and FIFO Workers: Many lenders struggle to understand complex payslips with allowances, site uplifts, and rosters. We know which lenders annualize this income correctly rather than treating it as “unstable” overtime.

Self-Employed Contractors: Gladstone has a high density of contractors who move between ABN and PAYG work. Specialist lenders are often required here to view this as continuous employment rather than a “new job.”

Investors: With high yields in the region, rental income is a key factor. Some lenders will use 90% of your rental income for serviceability if the property is in a high-demand area, while others stick to 80%.

What We Do Differently

At AJ Home Loans, we dig deeper than the basic online forms.

• We Analyze the “Four Cs”: Character, Capacity, Collateral, and Credit—before the bank does.
• We Optimize Your Application: We advise on which debts to pay down first to get the maximum lift in borrowing power.
• We Shop the Policy: We don’t just look for the lowest rate; we look for the lender whose policy treats your specific income type most favorably.

Get an Accurate Assessment

Trusting a generic online calculator with your home-buying dream is a risk you don’t need to take.

Book a free strategy session with us today. We will assess your true borrowing capacity across multiple lenders and give you a clear, actionable number you can rely on.