Understanding Mortgage Affordability
One of the first questions when buying a home is: "How much can I borrow?" Lenders use various factors to determine your borrowing capacity. Understanding these can help you prepare and potentially increase the amount you can borrow.
The Income Multiplier Rule
Most lenders use a multiple of your annual income to determine how much they'll lend:
4x
Standard multiple
Most common for single applicants
4.5x
Higher multiple
Available with good credit
5x+
Maximum multiple
For high earners with clean records
Example Calculation
If your annual salary is $40,000:
- • 4x multiple: $160,000 potential borrowing
- • 4.5x multiple: $180,000 potential borrowing
- • 5x multiple: $200,000 potential borrowing
What Lenders Look For
1. Income Stability
Lenders prefer stable, regular income. They'll look at:
- Employment history (usually 3-6 months in current role)
- Type of employment (permanent, contract, self-employed)
- Additional income sources (bonuses, commissions, benefits)
2. Credit History
Your credit score affects both your approval chances and the interest rate you'll be offered. Check your credit report before applying and address any issues.
3. Existing Debts
Lenders will assess your debt-to-income ratio. Existing loans, credit cards, and other commitments will reduce how much you can borrow. Consider paying down debts before applying.
4. Deposit Size
The larger your deposit, the better mortgage deals you'll have access to:
Joint Applications
Applying with a partner? Lenders typically use the combined income, which significantly increases your borrowing power. For example, two applicants each earning $35,000 could potentially borrow $280,000-$315,000 combined.
The Affordability Assessment
Beyond the income multiple, lenders conduct a detailed affordability assessment. They'll look at your regular spending to ensure you can comfortably afford repayments even if interest rates rise.
Quick Tip
Use our mortgage calculator to get a personalised estimate. Remember, this is just a guide - speak to a mortgage adviser for an accurate assessment of your borrowing capacity.