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7 Factors That Influence Your Home Loan Borrowing Capacity

Understanding your home loan borrowing capacity is crucial if you're on the path to homeownership or even just considering it. This capacity determines the financial boundaries of your homeownership journey, dictating how much you can borrow from a lender and what kind of property you can afford.

Different factors come into play when assessing your home loan borrowing capacity. Each uniquely shapes your financial profile and, ultimately, your ability to turn that dream of homeownership into a reality.

Let's dive into the key factors that play a role in this critical financial decision.


Lenders, whether traditional banks or modern online lending platforms such as Loan Monster, a Mortgage Broker in Fremantle, put a magnifying glass over your income because it indicates your ability to repay the loan. They seek borrowers with stable and verifiable income sources, which assure them that you have a steady stream of funds to meet your financial commitments.

When lenders scrutinise your income, they take into account various components:

  • Employment Status: This is a fundamental aspect. Lenders often prefer borrowers who are employed with a stable job history. A consistent employment record can boost your borrowing capacity.
  • Salary: Your base salary is a significant part of your income assessment. A higher salary typically leads to a more substantial borrowing capacity.
  • Additional Sources of Income: Beyond your salary, any additional sources of income are also considered. It could include rental income from investment properties, investment dividends, or side businesses. These supplementary sources can significantly bolster your borrowing capacity.

Living Expenses

Beyond your income, your current living expenses are another significant factor in determining your home loan borrowing capacity. Lenders aim to ensure you can comfortably manage your monthly mortgage payments without undue financial strain.

They require a comprehensive understanding of your ongoing financial obligations such as utilities, groceries and household expenses, insurance, entertainment and leisure, and more to gauge this.

Credit History

Your credit history is a financial record of your past borrowing and repayment behaviour. It encompasses all your credit accounts, including credit cards, loans, and other forms of credit. Lenders use this information to assess the risk associated with lending to you.

A favourable credit history demonstrates your ability to manage debt and meet financial obligations, making you a more attractive candidate for loan approval. You can also see your credit score.

Your credit score, which is a numerical representation of your creditworthiness, significantly impacts the interest rates you are offered. A high credit score, ranging from 670 to 739, often translates to lower interest rates, saving you money over the life of your loan.

A robust credit history improves your chances of loan approval and increases your borrowing capacity. Lenders are more willing to lend more significant amounts to individuals with a proven track record of responsible credit management.

Deposit Amount

A down payment is a lump sum of money you contribute towards the purchase price of a home. It demonstrates your financial commitment to the property and is critical to the home loan equation. 

Lenders typically view borrowers with larger down payments favourably. A substantial down payment reduces the lender's exposure to risk, as you have more equity in the property from the start. It can translate into a smoother loan approval process and more competitive loan offers.

The Value Of The Property

The property value you're eyeing is pivotal in calculating your home loan borrowing capacity. It plays a significant role in determining how much a lender is willing to provide, and it is assessed through the Loan-to-Value Ratio (LTV)

The LTV is a metric that expresses the relationship between the loan amount you seek and the appraised value of the property you intend to purchase. It’s computed by dividing the property's appraised value by the loan amount. A lower LTV indicates that you borrow a smaller percentage of the property's value.

Various factors, including location, size, condition, and market trends, can influence the property value you intend to purchase. It's essential to have the property appraised by a professional to determine its current market value accurately.

Term and Interest Rate

Your loan term and interest rate will also impact your borrowing capacity. Shorter loan terms and lower interest rates generally result in higher monthly payments but can lead to a higher borrowing capacity. Conversely, longer loan terms and higher interest rates may lower your borrowing capacity but result in lower monthly payments.


Lenders consider your debt obligations, such as credit card balances, student loans, car loans, and other financial commitments, when assessing your eligibility for a mortgage. One of the essential metrics they use is the Debt-to-Income Ratio (DTI).

It gives lenders insight into your ability to manage additional debt, such as a mortgage. A lower DTI, preferably lower than 36%, indicates that you have more discretionary income to allocate towards potential new loan payments, making you a more appealing candidate from a lender's perspective.


Understanding the factors influencing your home loan borrowing capacity is crucial before starting your home-buying journey. By assessing your income, living expenses, credit history, deposit amount, property value, loan terms, and existing debts, you can make informed decisions and increase your chances of securing a favourable home loan.