The factors that affect your limit are:
- Income and Expenses
One of the primary factors that determines how much you can borrow for your home loan is your income and expenses. Lenders want to make sure that you can afford to repay the loan, so they will assess your income and expenses to determine your borrowing capacity. This is done by calculating your debt-to-income ratio, which is the percentage of your income that goes towards paying off debt. Generally, lenders prefer borrowers to have a debt-to-income ratio of no more than 43%.
- Loan to Value Ratio (LVR)
The loan to value ratio is the amount of the loan compared to the value of the property. 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. The maximum LVR that lenders will allow is usually 95%, which means you’ll need a deposit of at least 5%.
- Credit Score
Your credit score is another important factor that determines how much you can borrow for your home loan. Lenders use your credit score to assess your creditworthiness and your ability to repay the loan. The higher your credit score, the more likely you are to be approved for a loan, and the higher the maximum amount you can borrow.
- 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.