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Understanding borrowing capacity

Are you planning to apply for a home loan in Australia? One of the most critical factors that lenders consider when assessing your application is your borrowing capacity. Essentially, your borrowing capacity is the amount of money you can borrow to purchase a property or refinance your existing home loan to another lender. To calculate your borrowing capacity, lenders evaluate various factors, including your income, expenses, and financial commitments.

Understanding borrowing capacity

Steve would typically need the following information to work out your borrowing capacity for a home loan:

  1. Personal details: Name, address, contact information, and IDs such as your Driver Licence, passport etc.

  2. Income details: Pay slips, tax returns, and other evidence of your income, including any rental income from investment properties.

  3. Employment of employment: Information about your current job, length of time in the current role, and your employment history up to 3 years.

  4. Asset and liability details: Details of any assets you own, such as property, savings, and investments, as well as any liabilities, such as debts and loans.

  5. Living expenses: Information about your regular living expenses, such as household bills, transport costs, and any other regular outgoings.

  6. Loan details: Information about the type of loan you are interested in, the amount you want to borrow, and the purpose of the loan.

  7. Property details: Information about the property you are looking to purchase or refinance. Details about the property's location and features.

Steve will use this information to assess your borrowing capacity and provide you with a range of loan options that may be suitable for your circumstances. It's important to be as accurate and honest as possible when providing this information to ensure that the Steve can provide you with accurate and helpful advice. As a borrower, it's essential to understand the information and documents required to work out your borrowing capacity. In this article, we'll discuss everything you need to know about calculating your borrowing capacity, and how Steve Keramidas, a mortgage broker in Melbourne, can make the process easy for you.


Your income plays a critical role in determining your borrowing capacity. Lenders assess your income to determine your ability to repay the loan. Generally, lenders consider your gross income, which includes your base salary, bonuses, commissions, and any other income you earn. Lenders will use this information to calculate your debt-to-income ratio, which is the amount of debt you have relative to your income.

When applying for a home loan, you need to provide the lender with documents that confirm your income. Some of the documents required include:

  1. Payslips: Payslips provide proof of your income and show how much you earn before tax.

  2. Employment contract: This document shows your employment terms and conditions, including your salary, employment period, and other relevant details.

  3. Tax returns: If you're self-employed, you need to provide your tax returns for the past two years to show your income.


Your living expenses play a crucial role in determining your borrowing capacity. Lenders consider your expenses to ensure that you can meet your loan repayments without experiencing financial hardship. When assessing your expenses, lenders consider your regular living expenses, such as food, utilities, transport, and entertainment.

To work out your expenses, you need to provide the lender with a detailed list of your monthly expenses. This includes things like rent, mortgage repayments, bills, and other expenses. Some of the documents required include:

  1. Bank statements: Bank statements provide a detailed record of your expenses and show how much you spend on a monthly basis.

  2. Rental agreements: If you're renting, you need to provide a copy of your rental agreement to show how much you pay in rent.

  3. Utility bills: Utility bills provide evidence of your regular expenses, such as electricity, gas, water, and internet.

Financial commitments

Apart from your income and expenses, lenders also consider your existing financial commitments when assessing your borrowing capacity. These include any other loans or credit card debts that you currently have. When assessing your financial commitments, lenders look at the total amount of debt you have and the monthly repayments required.

To work out your financial commitments, you need to provide the lender with a detailed list of all your loans and credit card debts. This includes the name of the lender, the outstanding balance, and the monthly repayment amount. Some of the documents required include:

  1. Loan statements: Loan statements show the outstanding balance, interest rate, loan term and repayment amount of your existing loans.

  2. Credit card statements: Credit card statements show your outstanding balance and limit in order to determine minimum repayment required.

How Steve Keramidas, a mortgage broker in Melbourne, can make the process easy for you

Calculating your borrowing capacity can be a daunting task, especially if you're not familiar with the process. That's where a mortgage broker can help. Steve Keramidas, one of the best mortgage brokers in Melbourne, can make the process easy, stress-free, and provide you with guidance and advice.

As an experienced mortgage broker, Steve can help you navigate the complexities of the loan process and provide you with expert advice on how to improve your borrowing capacity. Steve can also assist you in finding the best home loan product that suits your needs and objectives.

Get in touch with us today to explore the options available!


Disclaimer: This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.



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