How much can I borrow?
Determining how much you can borrow depends on a range of factors.
There are many lenders who will now do loans up to 95% of the value of the home (known as Loan to Value Ratio, or LVR), and some will even go as high as 98%. However, any borrowing over 80% LVR will attract Lenders Mortgage Insurance (or LMI).
In the context of home loans, the LVR is simply the home loan or investment loan amount divided by the value of your property.
LMI is insurance that you will pay (and added to the loan amount) that will protect the lender should you default on the loan and they will need to sell. If for any reason they cannot recover the full amount outstanding on the loan, the insurance will cover the difference.
It is important to note that this insurance in no way covers the you for any losses, only the lender and no lender will provide a loan without LMI when the LVR is over 80%.
Example: How to calculate your LVR
Property value = $800,000
Amount owed = $600,000
$600,000/$800,000
x 100 = 75%
For LVR purposes, the value of a property is determined by the valuation conducted on behalf of the lender, not the price you pay for it or the advertised price.
So, while some lenders could potentially lend you up to 95% of the value of the property (value not purchase price), the true answer to how much you can borrow depends on a few influencing factors:
1. Your income – how much you earn
2. How you earn your income - either as a paid employee (referred to as Pay As You Go or PAYG, which means you are paying tax as you earn your money) or as a self-employed business owner.
3. How much you work/type of employment – full time, part time, contract or casual workers
4. How many applicants for the loan – you might be applying with your partner, a family member or with some friends
5. How much debt you have – you may have other loans – including credit cards and store cards,
personal loans and car leases, HELP, Centrelink or ATO debt, or a Buy Now Pay Later (BNPL) account
6. Your monthly expenses – How much you spend on your living and lifestyle costs is a factor in how much you can borrow.
7. The number of dependents you have.
8. Your credit score.
The easiest way to understand your borrowing capacity is to have us run some simple scenarios for you. This is all obligation free and at no cost to you.
We work closely with our clients each step of the lending processes to ensure you are clear on what you can borrow, how much deposit you will need and what additional factors you need to consider. We also help our clients obtain pre-approval so that they can make offers on houses or bid at auctions with more confidence in their borrowing capacity.
To take the stress out of the process and determine your borrowing capacity, get in touch.
If you want to get started, you can complete our 5 minute form here: https://bit.ly/43VqyrH
Call on: 0418 552 938
Email at: peter.jefferson@mortgagechoice.com.au, or
Book a time to chat: https://bit.ly/43WsXma
If you’re a first home buyer, I’ve also created a useful guide to help you understand other key aspects of buying your first home you can get your free copy.