Your borrowing power will be determined by:
Income, Type of Property and Deposit
First up you are going to need at least a 5% deposit. Once that is ticked that off, you will find banks will be prepared to lend you more than you can afford. Unless you are happy living on tofu and baked beans, it’s not a question of how much can I borrow, but what can I reasonably afford?
At a simplistic level you can borrow between 4 and 5 times your income. To illustrate, a couple earning $110,000 between them can borrow between $440,000 and $550,000.
It will be closer to $440k if they have other debts or kids pushing up their expenses. On the other hand if they really do actually eat tofu (and are good savers) then $550,000 would be achievable. You can download our Borrowing Calculator.
Practice makes perfect
Another simple trick to test what you can afford is to convert your rental costs and monthly savings into an annual figure, and then divide by 8% to convert to what you can borrow. If you rent is $330 per week and you save $2,000 per month then 330*52 = 17,160 + 12,000 = 29,160 / 0.08 = $364,500.
Try living with your mortgage before you buy.
If you are borrowing at the top end of our estimate then try setting up your bank account so that your savings (+rent) equate to the mortgage repayments once you buy. That way you can gauge whether your mortgage is realistic.
Deposit
The more deposit you have the lower the cost of borrowing. Ideally you will have a 10% saved deposit (but we can work with as little as 5% as long as it is saved.) Borrowing over 90% is difficult and rather expensive.
Another deposit option is to use a limited guarantor or to borrow the deposit funds through a second mortgage. The guarantee is usually against a parent’s property but we can also use term deposits as the security.