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How much can you borrow?

The amount of money you can borrow, commonly known as your 'borrowing capacity', will differ from lender to lender. Some lenders will lend you more than others, so it’s worth shopping around.

In general, however, mortgage lenders will assess an investor’s borrowing capacity on the following criteria:

  1. The borrower’s income and repayment capacity
  2. The Loan to Value Ratio (LVR); this is the percentage of the purchase price that lenders will agree to lend

Based on the above the lender will calculate a maximum loan amount. The maximum loan amount that will be granted is usually 80% of the appraised value, sometimes 90%.

Get Pre-approved for a Mortgage
Loan pre-approval means you are given finance approval prior to purchasing a property. Getting pre-approved for a mortgage is a huge advantage as you know how much you can afford to borrow and therefore what price range you can look in.

To obtain pre-approval for a mortgage you have to confirm your ability to qualify for a mortgage based on your current financial position, credit history, employment information and other relevant criteria.

Advantages of being pre-approved for a mortgage include:

  • You have an indication of how much you are able to borrow
  • You have a realistic budget when you shop for a property to purchase
  • You can show real estate agents and vendors that you’re a serious buyer
  • You can move quickly when you find a property to purchase

It is important to remember that pre-approval does not mean that your home loan has been given final approval. Final approval cannot be given until you have purchased a property and the lender has confirmed that it is of sufficient value to secure your loan.

If a borrower has pre-approval, but a valuation on the property indicates that it is not of sufficient value to secure the loan, the lender may reject the loan application.