Newspaper article The Queensland Times (Ipswich, Australia)

How Much Can You Borrow?

Newspaper article The Queensland Times (Ipswich, Australia)

How Much Can You Borrow?

Article excerpt

WHEN borrowing to purchase a property the amount a lender is willing to loan will depend on the size of your deposit, how much you earn and what you spend.

There can be a difference between what a bank will lend you and what you can afford to pay.

Here's what to think about before applying for a home loan.

Calculate what you can afford

The first step to considering how much you can afford to borrow is to draw up a budget.

Write down your monthly income and then account for all your expenses.

This will give you a good idea of how much you are already spending each month, and how much you have left over to potentially put towards a mortgage.

When doing a budget, you should always allow for a buffer for unexpected expenses and interest rate changes.

To calculate your borrowing capacity, consider your income, expenses, any personal debt and the appropriate type of loan.

Here are some tips to remember:

- Income: The general rule that commentators follow is that repayments shouldn't be more than 35% of your gross income.

- Expenses: Make a list of current and future expenses, factoring in things like having children, the financial repercussions of unexpected events such as job loss, and interest rates rising or falling.

- Loan: The loan amount will dictate your monthly mortgage repayments so be wary of overstretching yourself. The bigger your deposit compared to the loan amount, the smaller the repayments will be. Use a home loan calculator to work out how much you will likely be reppaying each month.

Make sure you fit the lending criteria

Lending criteria can vary greatly between banks, and will depend on factors such as the state of the economy and the size of the institution.

Common lending criteria can include:

- A minimum deposit based of the loan-to-value (LVR) of the loan. …

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