How do lenders decide how much I can borrow?

Lenders look at how much you earn, how much you own, and how much you owe. There are some other criteria such as your credit history, length of employment, etc, but as of the time I'm typing this message, most lenders will cap your borrowing at 4.5x your gross annual income. For a better and more accurate calculation, speak with a mortgage broker :)

Different lenders have different credit policies according to their internal risk appetite. For example, Westpac may assess existing rental income at 80% of the contract value, ING may only use 65% of the same rental income, and CBA may be able to use 6% of the property value instead. If you are stretching on your total borrowing ratio, that could have a significant bump in the total loan amount they are willing to approve. From a lender’s point of view, they consider a “good loan” is someone who can demonstrate both the ability and the willingness to repay the loan they lend out. Your loan application can help lenders to determine your ability to make mortgage repayments. The willingness to repay is assessed mostly through your credit history. For example, a delinquency filed on your credit report for your electricity bill is certainly not a good sign when you are looking to borrow a half a million dollars home loan. For lenders to understand your financial situation, and your ability to meet regular repayment is to assess if your income is large enough to service the new expenses associated with the new loan, plus any existing debt obligations that will continue in the future. A debt-to-income ratio or loan to income ratio generally used by lenders to measure your ability to make repayments comfortably without putting you in financial hardship. Generally speaking, a debt to income ratio higher than six times of your total income is considered to be a higher risk. That means you might fall into financial stress if your financial situation was to change suddenly or if the interest rates were to rise dramatically. If you are only marginally over the borrowing capacity limit, you will need to reduce the total loan amount you like to borrow, or find another lender. As mentioned earlier, all lenders have different credit policies, and often it is handy to use a mortgage broker who has access to multiple lenders, and they can help you find a lender to get your home loan approved.