Generally, when a lender checks your mortgage application, it has been assumed that nearly 30% of your gross income is likely to be used to make loan repayments. Then it factors your assets, debt, and spending to predict your borrowing capacity. If you are looking for ‘how much can I borrow for a mortgage’, then you need to read this blog.
How Much Can I Borrow for Home Loan?
If you want to know how much you can afford for a home loan, you can use a borrowing power calculator. By entering a few details in the calculator, you’ll have a rough idea of your borrowing capacity. Generally, you are required to enter a few details written below:
- Loan Term:This is the length of the loan term (you can choose 30 years loan term if you are not sure about the home loan term for now).
- Interest Rate:Repayment costs can be determined using the interest rate of the home loan.
- Application Type:If you are applying as a single applicant, then you can choose ‘No’ from the joint income, otherwise, you can choose ‘Yes’ if you are applying as a couple.
- Income:You’ll be asked to enter your gross income to check how much you earn.
- Expenses:You can roughly enter your monthly debt payments.
- Dependents:Put the number of children you have in this field.
How do Lenders Calculate How Much You Are Able to Borrow?
Basically, they consider your income and expenses from various sources. Lenders consider looking at home loan debt as a proportion of your monthly income. They calculate your borrowing capacity. Their calculations will be based on things like:
- your income and expenses
- your deposit size
- your liabilities and debts
- your credit history
- your employment history
- the value of your property
If you are thinking of ‘Can I afford to buy a house’, then you must check how much you can afford and the rest amount you can borrow from the bank. To increase your chances of getting approved, you need to check your credit score, reduce your spending in the months before you apply for a loan and pay any outstanding personal loan debts
Consider a Few Things to Determine Your Borrowing Power
Here are a few things that you must consider to determine your borrowing capacity:
- Income & Expenses
Your income is the best aspect that you can consider if you want to know ‘home loan how much can I borrow’. Your income will decide on how much you can repay on a monthly basis. Consider looking at your living expenses to know how much salary you’ve left to cover home loan repayments.
- Deposit Savings
If you have a bigger deposit, then you’ll have a small loan amount and less interest rate you’ll need to pay. Generally, it is advisable to save as much as possible before purchasing a home. You may be eligible for a scheme offered by the government to save thousands of dollars when buying a home.
- Saving History & Credit Score
Saving for a deposit is one of the best methods to show that you can easily manage home loan repayments. The lender will also check your credit history, which will depend on your repayment and borrowing history.
- Support for First-Time Home Buyers
The first home owners grant is a government scheme that offers financial assistance to first-home buyers. The amount of the grant, eligibility requirements and payment details of a first home buyers grant all vary among the states and territories. Usually, the grant is paid when it’s time for property settlement.
- Length and Types of Home Loan
Home loan type and interest rates will have a direct impact on your borrowing power. The lower interest rate will lead to minimum repayments. If you choose a longer loan term, it means you borrow more, but it will maximise the total interest rates that you’ll pay.
Before you buy a home, it is essential to know how much you can afford to borrow a home loan. For this, using a borrowing power calculator would be the best option. For further information, you can contact Home Star Homeloans.