How Much Can I Borrow for a Home Loan in Australia? (2026 Guide)
Your borrowing capacity is determined by income, expenses, existing debts, deposit size, and credit score — all stress-tested at your rate plus 3%. This guide explains every factor with a full worked example, income benchmarks, and the strategies that genuinely increase your borrowing power.
Most Australians approach borrowing capacity the wrong way. They start with a property price in mind and ask whether the bank will lend them enough to buy it.
Banks do the opposite. They start with your income, subtract your expenses and existing debts, stress-test the result at an interest rate 3 percentage points above your actual rate, and calculate the largest loan you can demonstrably service. The number they arrive at is often meaningfully different — and sometimes significantly lower — than what buyers expect.
In 2026, the calculation is more complex than it has been in years. The RBA cash rate is 4.35%, variable home loan rates are above 6%, assessment rates are pushing toward 9.5%, and APRA has introduced new debt-to-income (DTI) limits effective from February 2026. Understanding the mechanics of how lenders assess your borrowing capacity is not just useful — it is the essential precondition to an effective home loan strategy.
This guide explains every factor that determines how much you can borrow, walks through a full worked example with real numbers, and covers the strategies that genuinely increase your borrowing power before you apply.
Use the Dolaro borrowing power calculator for your personalised estimate — then read this guide to understand exactly what is driving the number.
The Framework: How Lenders Calculate Borrowing Capacity
At its core, a lender's serviceability assessment follows a straightforward formula:
Maximum borrowing capacity = the largest loan whose repayments fit within your surplus income, assessed at the stressed interest rate.
The formula in practice:
- Start with your gross assessable income
- Subtract your assessed living expenses (the higher of your declared expenses or the HEM benchmark)
- Subtract your existing debt commitments (credit cards, car loans, HECS, personal loans)
- The remainder is your monthly surplus — the maximum amount available for mortgage repayments
- Calculate the maximum loan whose repayments at the assessment rate (actual rate + 3%) equal your monthly surplus
- That loan amount is your borrowing capacity
Every APRA-regulated lender in Australia is legally required to follow this framework. The numbers vary by lender — different HEM assumptions, different income treatment, different expense floors — but the structure is universal.
Factor 1: Your Income
Income is the engine of borrowing capacity. Everything else is a deduction from it.
What Lenders Count as Income
PAYG salary and wages: Your base salary is counted at 100% of gross income. Regular overtime is typically included at 80% if you can demonstrate it is consistent across two or more years of payslips. Annual bonuses are generally counted at 50% if recurring, or excluded if inconsistent.
Rental income: Lenders count rental income from investment properties at 80% of gross rent (a standard "vacancy buffer"), not the full amount.
Government payments: Centrelink payments including Family Tax Benefit (FTA and FTB) are generally included at 100% if they are ongoing and not subject to a time limit.
Investment income: Dividend income and trust distributions are usually counted if they appear on two consecutive tax returns and are ongoing. They are typically assessed at 80% of the demonstrated average.
Self-employed income: Self-employed borrowers are assessed on a two-year average of their net taxable income as shown on tax returns. This is one of the most significant constraints self-employed borrowers face — a strong current year is often discounted if the prior year was lower. Some lenders use the lower of the two years; others use the average. The treatment varies by lender and is one of the primary reasons self-employed borrowers benefit from specialist mortgage broker advice.
Second income: A joint application includes both incomes, which typically increases borrowing capacity substantially — often more than doubling a single-income figure because household expenses are shared.
Income Benchmarks: How Much Can I Borrow on My Salary?
These estimates assume a single applicant, no dependants, standard living expenses at HEM, no existing debts, and a 30-year principal and interest loan assessed at approximately 9.5% (6.5% actual rate plus the 3% APRA buffer).
| Gross annual income | Estimated borrowing capacity |
|---|---|
| $70,000 | $300,000 – $380,000 |
| $90,000 | $390,000 – $480,000 |
| $100,000 | $450,000 – $530,000 |
| $120,000 | $550,000 – $680,000 |
| $150,000 | $690,000 – $850,000 |
| $180,000 | $820,000 – $1,020,000 |
| $200,000 | $920,000 – $1,120,000 |
| $250,000 (joint) | $1,150,000 – $1,400,000 |
Sources: Stanford Financial, CalculatorMate, Rovo Finance — indicative estimates for single applicants at standard lender settings, June 2026. Actual capacity varies significantly by lender, expense profile, existing debts, and credit history.
These ranges reflect the variation between more conservative lenders (typically the Big Four banks) and more flexible lenders (some non-banks and customer-owned institutions). A mortgage broker assessing your position across 50+ lenders simultaneously can identify where within this range your application sits.
Factor 2: The APRA Serviceability Buffer — The Rule Most Borrowers Do Not Know
The single largest structural constraint on Australian borrowing capacity in 2026 is not the interest rate itself — it is the APRA serviceability buffer.
APRA requires all regulated lenders to assess whether you can service your loan at your actual interest rate plus 3 percentage points. With variable home loan rates currently in the 6.0% to 6.5% range, lenders are assessing new applications at an effective rate of approximately 9.0% to 9.5%.
This is not a lender choice. It is a mandatory regulatory requirement that applies to every APRA-regulated institution — every bank, building society, and credit union in Australia.
What the Buffer Does to Your Borrowing Capacity
The buffer's practical effect is to reduce your borrowing capacity by approximately 15–20% compared to what it would be if assessed at the actual interest rate.
As a concrete example: a borrower with $8,000 per month in disposable income can service a larger loan at 6.5% than at 9.5%. The buffer forces the lender to use the higher rate in the calculation, producing a lower maximum loan amount.
The buffer's purpose is consumer protection — ensuring borrowers can absorb future rate increases without defaulting. Given that the RBA raised rates three times in 2026 and may raise further, the logic is well-founded. But its effect on first home buyers and those in high-cost markets is significant.
Key point: The buffer has been maintained at 3% as of May 2026 with no APRA announcement of a planned change. Borrowers should plan their capacity based on the buffer remaining in place.
Factor 3: Living Expenses and the HEM Benchmark
When you apply for a home loan, you declare your monthly living expenses. The lender then compares your declared figure against a benchmark called the Household Expenditure Measure (HEM).
What HEM Is
The HEM is a quarterly benchmark published by the Melbourne Institute of Applied Economic and Social Research. It estimates minimum but adequate living costs for different household types — adjusted for income level, family size, and inflation. It classifies over 600 spending items across three categories: absolute basics (food, utilities, transport, children's clothing), discretionary basics (takeaway, restaurants, alcohol, adult clothing), and non-basics (holidays, luxury goods).
Lenders use the HEM as a floor. If your declared expenses are lower than HEM, the lender will use HEM regardless. If your declared expenses are higher than HEM, the lender uses your declared figure.
What HEM Means in Practice
You cannot improve your borrowing capacity by understating expenses. If your declared expenses are below HEM, the lender substitutes HEM anyway. The only reliable strategy is to genuinely reduce your committed expenses — cancelling unused subscriptions, reducing credit card limits, paying down existing debts — in the months before applying.
The actual HEM tables are proprietary, licensed commercially to lenders and not publicly published. Industry estimates suggest the following indicative monthly HEM figures for mid-income households:
| Household type | Estimated monthly HEM (indicative) |
|---|---|
| Single, no dependants | ~$1,600 – $1,900/month |
| Couple, no dependants | ~$2,200 – $2,600/month |
| Couple, 1 child | ~$2,700 – $3,100/month |
| Couple, 2 children | ~$3,200 – $3,700/month |
| Couple, 3 children | ~$3,700 – $4,300/month |
Indicative estimates based on industry benchmarks. Actual HEM varies by income band and location.
Each additional dependant effectively increases the HEM floor applied to your assessment, reducing borrowing capacity. Industry estimates put the borrowing capacity reduction at approximately $40,000 to $60,000 per additional child, depending on the lender and income level.
Factor 4: Existing Debts — The Silent Borrowing Power Killer
Every existing debt obligation reduces your monthly surplus and therefore reduces your maximum borrowing capacity. But not all debts are treated equally — and some have effects that surprise borrowers.
How Different Debts Are Treated
Credit cards (assessed on the full limit, not the balance): This is one of the most misunderstood aspects of the home loan process. A credit card with a $15,000 limit and a zero balance is still assessed as a liability. Lenders apply a standardised monthly repayment obligation against the full limit — typically 2.5% to 3.5% of the limit per month — regardless of your actual balance.
A $15,000 credit card limit therefore reduces your monthly available surplus by approximately $375 to $525, which translates to a reduction in borrowing capacity of approximately $40,000 to $55,000.
Closing unused credit cards, or reducing limits on cards you do use, before applying is one of the highest-leverage quick wins available to borrowers.
Buy Now Pay Later (BNPL) accounts: Afterpay, Zip, Klarna, and similar services are now treated as debts by most lenders. Even a small outstanding balance or an active account can flag on your credit file and be included in the expense assessment. Clearing and closing BNPL accounts before applying is recommended.
Car loans and personal loans: Monthly repayment obligations are counted directly against your monthly surplus. A $400/month car loan repayment reduces borrowing capacity by approximately $100,000 to $130,000 over a 30-year assessment period, depending on the remaining term and assessment rate.
HECS-HELP debt: HECS-HELP debt reduces borrowing capacity in two ways. First, the compulsory annual HECS repayment (a percentage of income set by the ATO) is treated as a monthly liability. Second, the HECS balance appears in debt-to-income ratio calculations. A $50,000 HECS debt on a $60,000 income triggers approximately $3,000 per year in compulsory repayments, reducing borrowing capacity by approximately $40,000 to $55,000 depending on the lender.
Investment property loans: Existing investment property debt is counted against borrowing capacity, with lenders applying specific policy adjustments for rental income offset.
The New APRA Debt-to-Income (DTI) Rule — February 2026
From 1 February 2026, APRA introduced a significant new constraint on Australian home lending. Banks and authorised deposit-taking institutions (ADIs) are now limited to issuing no more than 20% of new home loans to borrowers with a total debt-to-income (DTI) ratio of 6 times gross annual income or higher. This limit applies separately to owner-occupier and investor lending portfolios.
What this means for borrowers:
Your DTI ratio is calculated as:
DTI = (New mortgage + all existing debts) ÷ gross annual income
Example: A borrower earning $120,000 per year applying for a $680,000 mortgage with a $20,000 car loan has total debt of $700,000. DTI = $700,000 ÷ $120,000 = 5.83x — just inside the threshold.
Add a $10,000 HECS balance to the same scenario and DTI = $710,000 ÷ $120,000 = 5.92x — still under 6x but close.
For most owner-occupier borrowers on average incomes, the DTI cap is not immediately binding. Where it matters most is for: property investors building portfolios, single-income borrowers in high-cost markets (Sydney, Melbourne), self-employed borrowers with lower declared taxable income, and first home buyers in markets where entry-level prices push DTI above 6x.
The non-bank option: Non-bank lenders — those not regulated by APRA — are not subject to the DTI cap. They operate under ASIC credit licences and set their own credit policies. If a major bank declines an application because it has reached its high-DTI quota for the quarter, a non-bank lender may legitimately assess and approve the same application.
Factor 5: Deposit Size and LVR
Your deposit determines your loan-to-value ratio (LVR), which affects both how much you need to borrow and what you pay.
LVR and Its Consequences
LVR = (Loan amount ÷ property value) × 100
A $600,000 loan on an $800,000 property = 75% LVR.
The key threshold is 80% LVR. Above 80%, most lenders require Lenders Mortgage Insurance (LMI) — a one-off premium protecting the lender (not the borrower) against default. LMI costs can run from $8,000 to $40,000+ depending on the loan amount and LVR, and is typically capitalised onto the loan, which means you are paying interest on it for the life of the loan.
Below 80% LVR, LMI is not required, and borrowers access better rates and a wider range of products.
LVR thresholds and their effects:
| LVR | LMI required? | Rate impact | Product availability |
|---|---|---|---|
| Below 60% | No | Best available rates | Maximum product range |
| 60% – 70% | No | Competitive rates | Full range |
| 70% – 80% | No | Standard rates | Full range |
| 80% – 85% | Yes | Higher rates | Some restrictions |
| 85% – 90% | Yes | Higher rates | Reduced options |
| 90% – 95% | Yes (expensive) | Highest rates | Significantly restricted |
| Above 95% | Not available at most lenders | — | Very limited |
Government Deposit Support Schemes
First Home Guarantee (FHBG): Allows eligible first home buyers to purchase with a deposit of as little as 5% without paying LMI, because the government guarantees the difference between the 5% deposit and 20%. Income caps apply: $125,000 for single applicants, $200,000 for couples. A limited number of places are available each financial year.
Regional First Home Buyer Guarantee: Same structure as FHBG but for regional properties, with 10,000 places per year.
Family Home Guarantee: For eligible single parents with a deposit of as little as 2%, with the government guaranteeing the remainder. Income cap of $125,000.
These schemes reduce the deposit hurdle significantly but do not increase borrowing capacity itself — the loan is still assessed against your income and expenses at the same stressed rate.
Factor 6: Credit Score
Your credit score does not directly set your interest rate in Australia the way it does in the United States. Australian lenders use credit scores primarily as an approval gatekeeper rather than a rate-setter. However, credit history has important indirect effects on your borrowing capacity and loan access.
What Your Credit Score Affects in Australia
Lender approval: A poor credit history — missed payments, defaults, court judgments, or excessive recent credit enquiries — can result in outright decline from mainstream lenders, redirecting applicants to non-bank lenders who carry higher rates.
LMI eligibility: Many LMI providers have minimum credit score requirements. A poor credit score may prevent approval for LMI even if the lender is prepared to proceed, effectively blocking access to high-LVR lending.
Interest rate loading: While Australian lenders do not use a tiered, score-based rate schedule like US lenders, they do apply risk-based pricing in some circumstances — particularly for non-conforming borrowers or those with credit impairments.
Pre-approval success: A credit enquiry from a formal pre-approval application appears on your credit file. Multiple credit enquiries in a short period signal financial stress to lenders and can reduce approval odds. A mortgage broker can assess your position across multiple lenders with a single credit enquiry.
What Appears on Your Credit File
Under Australia's comprehensive credit reporting (CCR) framework, your credit file includes: repayment history on credit products (on-time, late, or missed), credit applications and enquiries, current credit limits and balances, defaults (payments 60+ days overdue), court judgments, and bankruptcy or debt agreements.
How to Check and Improve Your Credit Score
You are entitled to a free credit report from each of the three major Australian credit bureaus — Equifax, Experian, and illion — once per year. Checking your own credit file does not affect your score.
Before applying for a home loan, review your file for errors. Incorrect defaults or outdated information can be disputed and corrected. Genuine credit impairments take time to resolve — defaults remain on your file for five years — but demonstrating a consistent 12-month period of on-time repayments after an impairment significantly improves lender assessment.
Worked Example: Full Serviceability Calculation
Here is a complete worked example of how a lender assesses borrowing capacity, using realistic 2026 figures.
The Borrower Profile
- Name: Sarah and Tom
- Situation: Couple, both PAYG employees, one child (age 3)
- Sarah's gross annual income: $95,000
- Tom's gross annual income: $75,000
- Combined gross income: $170,000 per year = $14,167 per month
- Existing debts:
- Car loan: $380/month remaining repayments
- Credit card: $12,000 limit (zero balance, but assessed at 3% per month = $360/month)
- HECS (Sarah): $28,000 — compulsory repayment ~$2,100/year = $175/month
- Living expenses declared: $4,200/month
- Lender's HEM for this household type: ~$3,200/month (couple with one child, mid-income)
- Living expenses used in assessment: $4,200 (higher of declared and HEM)
- Loan type: Variable, owner-occupier, P&I
- Actual rate: 6.49%
- Assessment rate (APRA buffer): 6.49% + 3% = 9.49%
Step 1: Calculate Monthly Gross Income
Combined monthly gross income: $170,000 ÷ 12 = $14,167
Step 2: Calculate Total Monthly Commitments
| Commitment | Monthly amount |
|---|---|
| Living expenses (declared, above HEM) | $4,200 |
| Car loan repayment | $380 |
| Credit card (assessed limit: 3% × $12,000) | $360 |
| HECS compulsory repayment | $175 |
| Total monthly commitments | $5,115 |
Step 3: Calculate Available Monthly Surplus
$14,167 − $5,115 = $9,052 per month available for mortgage repayments
Step 4: Calculate Maximum Loan at Assessment Rate
Using the standard loan repayment formula at 9.49% per annum over 30 years:
Monthly rate r = 9.49% ÷ 12 = 0.7908%
Rearranging the standard formula for loan amount P:
P = M × [(1+r)^n − 1] / [r × (1+r)^n]
Where M = $9,052, r = 0.007908, n = 360:
(1.007908)^360 = e^(360 × ln(1.007908)) = e^(360 × 0.007877) = e^2.8357 = 17.056
P = 9,052 × [17.056 − 1] / [0.007908 × 17.056] P = 9,052 × 16.056 / 0.13487 P = 9,052 × 119.05 P = approximately $1,078,000
Before lender-specific policy limits and rounding.
Step 5: Apply the DTI Check
Total debt at $1,078,000 mortgage: $1,078,000 + $20,000 (car loan remaining) + $12,000 (credit card limit) + $28,000 (HECS) = $1,138,000
DTI = $1,138,000 ÷ $170,000 = 6.69x — above the APRA 6x threshold
This does not mean the loan is declined. It means APRA-regulated lenders must count this application against their 20% high-DTI quota. Some lenders with capacity remaining will approve it. Others may not. A mortgage broker would identify which lenders currently have quota available and whether a non-bank lender might be the path of least resistance.
Practical Adjustment: What If They Pay Down the Car Loan?
If Sarah and Tom pay off the remaining car loan balance before applying:
- Monthly surplus increases by $380 → new surplus = $9,432
- Maximum loan at 9.49% = approximately $1,118,000
- Revised total debt = $1,118,000 + $12,000 (credit card) + $28,000 (HECS) = $1,158,000
- Revised DTI = $1,158,000 ÷ $170,000 = 6.81x — still above 6x
But: if they also reduce the credit card limit from $12,000 to $5,000:
- Monthly credit card assessment drops from $360 to $150 (saving $210/month)
- New monthly surplus = $9,642
- Maximum loan at 9.49% = approximately $1,143,000
- Revised total debt = $1,143,000 + $5,000 (credit card) + $28,000 (HECS) = $1,176,000
- Revised DTI = $1,176,000 ÷ $170,000 = 6.92x — still above 6x
The DTI issue in this scenario is structural — the property prices accessible on $170,000 in Sydney and Melbourne inherently push this couple above 6x. The path forward is either a non-bank lender, a larger deposit (reducing the loan amount), or focusing the property search on markets where purchase prices produce a DTI below 6x.
Summary of the Worked Example
| Scenario | Maximum loan | Monthly repayment (at 6.49%) | DTI |
|---|---|---|---|
| Current position | ~$1,078,000 | ~$6,803 | 6.69x |
| Car loan paid off | ~$1,118,000 | ~$7,055 | 6.81x |
| Car loan + credit card reduced | ~$1,143,000 | ~$7,213 | 6.92x |
These figures are illustrative. Actual capacity will vary by lender. Use the Dolaro borrowing power calculator to model your own scenario.
8 Strategies to Increase Your Borrowing Power
If your calculated borrowing capacity falls short of your target purchase price, the following strategies — in order of typical impact — can improve your position before applying.
1. Close Unused Credit Cards (Biggest Quick Win)
Each $10,000 in credit card limit reduces borrowing capacity by approximately $40,000 to $55,000. Closing cards you do not use is the fastest, easiest improvement available. Do this at least 3–6 months before applying to allow the credit file to update.
If you need a credit card, reduce the limit to the minimum you genuinely need rather than closing it entirely.
2. Pay Down or Eliminate Existing Debt
Car loans, personal loans, and BNPL accounts all reduce your monthly surplus. Eliminating these before applying directly increases the income available for mortgage repayments.
3. Close BNPL Accounts
Afterpay, Zip, and similar accounts are now assessed as liabilities. Close them before applying, even if the balance is zero.
4. Increase Your Deposit
A larger deposit reduces the loan amount required, which reduces both the monthly repayment obligation and the DTI ratio. Every additional $10,000 in deposit reduces the loan — and the corresponding monthly repayment obligation — by the same amount.
5. Apply Jointly
A joint application almost always increases borrowing capacity, because two incomes are assessed against shared (not doubled) living expenses. A couple earning $95,000 and $75,000 combined ($170,000) typically qualifies for significantly more than twice a single income of $85,000, because the lender's HEM for a couple is not double the HEM for two individuals.
6. Document All Income Sources
Regular overtime, bonuses, rental income, investment distributions, and government payments all increase your assessable income. Ensuring all eligible income is properly documented — with payslips, tax returns, and account statements — prevents income from being excluded.
7. Make Voluntary HECS Repayments
If you have significant HECS-HELP debt, making voluntary repayments before applying reduces both the compulsory repayment included in your monthly expense assessment and the debt included in your DTI calculation. The ATO applies a 10% bonus on voluntary repayments above $500 (subject to current policy).
8. Compare Lenders — Policies Vary Significantly
The range between the most conservative and most generous lender in Australia for the same borrower profile can exceed $100,000 in maximum loan amount. Some lenders assess overtime at 80%; others at 100%. Some apply HEM at lower income bands; others apply it higher. Some use a conservative assessment rate; others apply the minimum buffer required by APRA.
A mortgage broker with access to a wide panel of lenders can identify the lender whose policy settings produce the best outcome for your specific circumstances without triggering multiple credit enquiries on your file.
Frequently Asked Questions
How much can I borrow for a home loan on a $100,000 salary in Australia?
On a gross annual income of $100,000 with no dependants, no existing debts, and standard living expenses, most Australian lenders will assess borrowing capacity of approximately $450,000 to $530,000 in 2026. This range reflects variation between more conservative lenders (typically the Big Four banks) and more flexible lenders. The assessment uses your actual rate plus the mandatory APRA 3% serviceability buffer — at current rates of around 6.5%, this means your repayment ability is tested at approximately 9.5%. Adding significant existing debts or dependants will reduce this figure substantially.
What is the APRA serviceability buffer and how does it affect my borrowing capacity?
The APRA serviceability buffer requires all regulated Australian lenders to assess your ability to service a home loan at your actual interest rate plus 3 percentage points. With variable rates around 6.5% in June 2026, lenders assess applications at approximately 9.5%. This buffer is not negotiable — it applies to every APRA-regulated institution including all banks, building societies, and credit unions. Its practical effect is to reduce maximum borrowing capacity by approximately 15 to 20% compared to what it would be if assessed at the actual rate. It remains at 3% as of May 2026 with no announced changes.
How much deposit do I need for a home loan in Australia?
Most lenders require a minimum deposit of 5% of the purchase price, but a deposit below 20% typically requires Lenders Mortgage Insurance (LMI), which adds $8,000 to $40,000 or more to your total loan cost. A 20% deposit (80% LVR) eliminates LMI, unlocks better rates, and provides access to the full product range. Eligible first home buyers can access the First Home Guarantee scheme, which allows a 5% deposit without LMI because the government guarantees the difference. Income caps and place limits apply.
Do credit cards affect how much I can borrow for a home loan?
Yes — and more than most borrowers realise. Lenders assess credit cards on the full credit limit, not the current balance. A $15,000 credit card limit with a zero balance is still assessed as a monthly liability of approximately $375 to $525, reducing your maximum borrowing capacity by approximately $40,000 to $55,000. Closing unused credit cards or reducing limits before applying is one of the highest-impact quick strategies available to borrowers seeking to increase their borrowing power.
Does HECS debt affect how much I can borrow for a home loan?
Yes. HECS-HELP debt affects borrowing capacity in two ways. First, the ATO-mandated annual repayment (a percentage of your income based on how much you earn above the threshold) is treated as a monthly expense commitment in the serviceability assessment. Second, the outstanding HECS balance is included in your total debt for debt-to-income ratio calculations. A $50,000 HECS balance can reduce borrowing capacity by approximately $40,000 to $55,000 depending on your income and the lender. Making voluntary repayments to reduce the balance before applying can improve both figures.
What is the debt-to-income (DTI) rule introduced by APRA in 2026?
From 1 February 2026, APRA requires all banks and authorised deposit-taking institutions to limit new home loans where the borrower's total debt — including the new mortgage plus all existing debts — exceeds 6 times their gross annual income to no more than 20% of their new mortgage lending. This applies separately to owner-occupier and investor portfolios. For most borrowers, this rule does not immediately affect approval — it primarily affects property investors, single-income borrowers in expensive markets, and high-HECS borrowers. Non-bank lenders are not subject to this cap. A mortgage broker can advise if this rule affects your application and which lenders have capacity for high-DTI borrowers.
How do lenders assess self-employed borrowers' income for a home loan?
Self-employed borrowers are typically assessed on a two-year average of net taxable income as shown on tax returns filed with the ATO. Some lenders use the lower of the two years; others use the average. Current-year income that is significantly higher than the prior year may be partially or fully discounted. Self-employed borrowers with variable or growing income generally benefit significantly from working with a mortgage broker who can identify lenders with policies more favourable to self-employed income profiles, including lenders who accept accountant declarations, BAS statements, or business bank statements as supplementary income evidence.
What is the HEM (Household Expenditure Measure) and how does it affect borrowing?
The HEM is a benchmark of minimum living expenses published quarterly by the Melbourne Institute. Lenders use it as a floor — if your declared living expenses are lower than the HEM for your household type and income level, the lender uses HEM regardless. The actual HEM tables are proprietary, but indicative monthly figures range from approximately $1,600 for a single person with no dependants to $3,700 or more for a couple with three children. You cannot improve your borrowing capacity by understating expenses — the HEM floor prevents this. The effective strategy is to genuinely reduce committed expenses (credit card limits, existing debts, BNPL accounts) in the months before applying.
How much can a couple borrow for a home loan in Australia?
A couple's borrowing capacity depends on their combined income, household expenses, and existing debts. As a general guide: a couple with a combined income of $150,000, one child, and modest existing debts can typically borrow $650,000 to $850,000. A couple earning $200,000 combined with no children and no existing debts may be assessed for $900,000 to $1,100,000 or more. Joint applications increase borrowing capacity significantly because both incomes are included while household living expenses are shared rather than doubled. Use the Dolaro borrowing power calculator for a figure specific to your combined position.
Can I increase my borrowing capacity before applying for a home loan?
Yes. The most effective strategies are: closing unused credit cards (each $10,000 in limit costs approximately $40,000 to $55,000 in borrowing capacity); eliminating car loans, personal loans, and BNPL accounts; ensuring all eligible income is properly documented; making voluntary HECS repayments to reduce the balance; applying jointly if possible; and comparing multiple lenders through a broker, as lender policies vary by $100,000 or more for the same borrower profile. These strategies are most effective when implemented three to six months before applying, allowing time for credit file updates and bank statement periods to reflect the improved position.
What is the difference between borrowing capacity and how much I should borrow?
Borrowing capacity is the maximum a lender will lend you — the technical ceiling based on income, expenses, and the APRA serviceability assessment. How much you should borrow is a separate question based on your personal financial goals, risk tolerance, lifestyle priorities, and long-term financial plan. Borrowing at your maximum capacity leaves no buffer for income disruption, rate increases above the assessed level, or unexpected expenses. Most financial advisers recommend targeting a loan amount that produces a monthly repayment of no more than 30% of gross household income, leaving meaningful surplus for savings, emergencies, and mortgage prepayments.
Final Word
Borrowing capacity in Australia in 2026 is determined by a precise, regulated framework — one where income, expenses, debts, and the APRA serviceability buffer interact to produce a maximum loan amount that is often different from what borrowers intuitively expect.
The most important insight is this: the assessment rate your lender uses is not your actual interest rate. It is your actual rate plus 3%. At current variable rates of around 6.5%, your repayment ability is being tested at 9.5%. This single factor drives more of the gap between expected and actual borrowing capacity than any other.
The second most important insight is that the gap between a well-prepared borrowing application and an unprepared one can be substantial — potentially $100,000 or more in maximum loan amount — from the same income. Closing unused credit cards, eliminating small debts, documenting all income, and comparing the right lenders makes a measurable difference.
Use the Dolaro borrowing power calculator to model your position with your specific income, expenses, and debts — and see exactly where your capacity sits in the current environment.
This article is general information only and does not constitute financial, legal or credit advice. Borrowing capacity estimates are indicative only and vary by lender. Always speak with a qualified mortgage broker or financial adviser before making any home loan decision.
Sources:
- APRA, Activating Debt-to-Income Limits as a Macroprudential Policy Tool, November 2025
- APRA, Prudential Practice Guide on Residential Mortgage Lending
- Reserve Bank of Australia, Cash Rate Target, June 2026
- ASIC MoneySmart, Home Loans
- Canstar, Household Expenditure Measure Explained
- CalculatorMate, How Much Can I Borrow — 2026
- Stanford Financial, How Much Can I Borrow for a Home Loan in Australia, April 2026
- JMD Mortgages, How Banks Calculate Living Expenses — HEM 2026
- Rovo Finance, Borrowing Power Calculator Australia