20 Ways to Boost Your Borrowing Capacity

Your borrowing capacity is essentially the ceiling on what you can spend on a property, so understanding it (and knowing how to improve it) is one of the most useful things you can do before you start house hunting.

Why Borrowing Capacity Matters

There’s no point falling in love with an $850,000 property if a lender is only going to approve you for $650,000. Knowing your realistic borrowing capacity upfront saves you time, keeps your expectations grounded, and means you’re not wasting weekends inspecting properties you can’t actually afford.

Why Borrowing Capacity Isn’t the Same at Every Lender

This is the part a lot of people don’t realise: your borrowing capacity can vary significantly from one lender to the next, sometimes by well over $100,000, for the exact same income and situation. That’s because each lender has its own way of assessing:

  • Income, some lenders only count a portion of overtime, bonus or rental income, others count more of it
  • Existing debts, some assess credit card limits at a higher rate regardless of the balance owing, others are more lenient
  • Living expenses, some use a standard benchmark, others rely more heavily on your actual bank statements
  • Assessment (buffer) rates, the interest rate they use to stress test your ability to repay, which varies by lender

This is exactly why it’s worth checking your borrowing capacity with an experienced mortgage broker rather than a single bank. A good broker has access to 50+ lenders and can quickly tell you which ones are likely to assess your situation most favourably, rather than you finding out the hard way after a single bank knocks you back. Brokers also get paid from the banks meaning a quality experienced one is completely free to use. 

20 Tips to Boost Your Borrowing Capacity

  1. Pay down and reduce the limit on your credit cards, even ones you don’t use. Lenders assess you as if you owe the full limit, not just your current balance.
  2. Close unused credit cards, Afterpay, Zip Pay and other buy now pay later accounts. These are treated as liabilities even at a zero balance.
  3. Pay off or reduce car loans and personal loans where you can.
  4. Avoid taking on new debt in the months before you apply.
  5. Save a bigger deposit to lower your loan to value ratio (LVR).
  6. Show a genuine savings history. Most lenders like to see at least 3 months of consistent saving behaviour, not just a lump sum that appeared overnight.
  7. Tighten up discretionary spending in the months before applying, lenders review recent bank statements and things like frequent takeaway or subscriptions can work against you.
  8. Document any second income (side hustle, rental income) with a consistent history behind it.
  9. Provide 2 years of tax returns if a chunk of your income comes from overtime, bonuses or commission, this helps the lender count more of it.
  10. Consider paying down your HECS/HELP debt if it’s materially reducing your take home pay and therefore your borrowing capacity (see my post on HECS for the trade offs involved here).
  11. Avoid multiple loan or credit applications within a short period, each one shows up as a credit enquiry and can lower your score.
  12. Combine your income with a partner or co-borrower if you’re buying together.
  13. Consider a guarantor loan to reduce or avoid the need for a large deposit (see my post on Guarantor Loans).
  14. Refinance and consolidate high interest debts into a single, lower repayment where possible.
  15. Compare lenders. Since each one assesses income, debts and expenses differently, the “best” lender for borrowing capacity really depends on your individual situation.
  16. Use an experienced mortgage broker with access to 50+ lenders, so you’re not stuck relying on the assessment of just one bank.
  17. Consider a longer loan term, this can lower your assessed minimum repayment (though keep in mind it means paying more interest over the life of the loan).
  18. Close redundant bank accounts and cards you no longer use, some lenders factor these in even when the balance sits at zero.
  19. Get any bonus or overtime income confirmed in writing by your employer, this makes it easier for the lender to count it.
  20. Wait until you’re past probation at a new job if possible, most lenders want to see at least 3 to 6 months in a role before counting the income at full value.

Bottom Line

Borrowing capacity isn’t a fixed number, it moves based on your debts, spending, income structure and which lender you apply with. A handful of small changes in the months before you apply can genuinely shift what you’re able to borrow, and getting an experienced broker to compare across a wide panel of lenders is one of the easiest ways to make sure you’re not leaving borrowing capacity on the table. I’ve had a borrowing capacity difference of 50% between lenders after a broker has done my calculations as some lenders factor different types of income and debts differently.