How Much Can You Borrow? The 2025 Guide to Mortgage Affordability

What Affects Your Borrowing Power? 

Lenders use a variety of factors to calculate how much you can borrow. These include: 

• Income (including bonuses, government payments, and investment returns) 

• Living expenses 

• Existing debt (such as car loans, credit cards, and Buy Now Pay Later accounts) 

• Employment type and stability 

• Credit history 

• Loan type and interest rate 

Most lenders apply a debt-to-income (DTI) ratio, which is a cap on how much you can borrow based on your income. While some lenders may allow you to borrow 4 to 6 times your gross annual income, this isn’t a fixed rule—it depends on your financial profile and the lender’s risk appetite. 

How Deposits Impact What You Can Borrow 

Generally, lenders like to see at least a 20% deposit, as this avoids the need for Lenders Mortgage Insurance (LMI)—a cost that protects the lender, not you. That said, many buyers (especially first-home buyers) don’t have 20% saved up. Here’s where options open up: 

• With a 10% deposit: You may still qualify for a loan, but expect to pay LMI. 

• With a 5% deposit: Some lenders will consider your application, especially if you qualify for government assistance schemes, but you’ll need strong financials and may face tighter lending conditions. 

First-Home Buyers in WA: Grants and Support 

If you’re buying your first home in Perth or regional WA, the First Home Owner Grant (FHOG) is a huge help. Here’s what you need to know: 

• $10,000 is available for newly built homes or homes under construction 

• It only applies to new residential properties 

• There are price caps—$750,000 for homes south of the 26th parallel (which includes Perth) 

• You must live in the home for a continuous period of 6 months within 12 months of settlement 

There’s also the First Home Guarantee (part of the Home Guarantee Scheme) which allows eligible buyers to purchase with just a 5% deposit without paying LMI. These schemes can significantly boost what you’re able to buy, especially when combined with competitive interest rates. 

Real-World Example: First-Home Buyer in Perth 

Let’s say you’re a single buyer earning $80,000 a year with no existing debts and a $40,000 deposit saved. You’re looking at a $500,000 newly built townhouse in Armadale. 

Here’s how that could work: 

• Loan amount: $460,000 (after deposit and FHOG applied) 

• Loan term: 30 years 

• Interest rate: 6.1% (variable) 

• Monthly repayments: Around $2,800 (not including insurance and other costs) 

Using a mortgage calculator, your borrowing power could sit around $450,000 to $520,000, depending on the lender and your living expenses. 

What About Self-Employed Borrowers? 

If you’re self-employed, you’re not out of luck—but you may face additional scrutiny. Most lenders prefer to see at least two years of business financials, but some will accept one year or offer low-doc loan options for established businesses. 

Here’s how to improve your chances: 

• Keep business and personal finances separate 

• Lodge your tax returns on time 

• Reduce tax minimisation in the year or two before applying—your income on paper matters more than what’s in your bank account 

• Work with a broker who understands specialist lending 

Improving Your Borrowing Power 

Not happy with the number your bank has given you? There are a few things you can do:

1. Reduce Unsecured Debt

Credit cards—even those with a zero balance—can significantly impact your borrowing capacity. Close unused accounts and reduce your credit limits where possible.

2. Track and Trim Living Expenses

Lenders will look closely at your recent bank statements. Apps like Pocketbook or WeMoney can help you track spending before applying for a loan.

3. Increase Your Income (or Include Additional Income Streams)

Include consistent side income, rental income, or government payments. Lenders may accept this if it’s verifiable and ongoing.

4. Consider a Guarantor

If you’re struggling with the deposit, some lenders allow a family guarantor arrangement. This can improve your borrowing power and reduce the need for LMI. 

How Credit History Comes Into Play 

Lenders will check your credit score during the loan application process. In Australia, credit scores typically range from 0 to 1200 (depending on the agency). 

As a general guide: 

• 700+ is considered good 

• 500–699 is average 

• Below 500 may be considered risky 

You can check your credit report for free through Equifax, illion, or Experian. Look for any defaults, missed payments or errors that could impact your score. Many borrowers are surprised to find things like old phone bills or Buy Now Pay Later activity dragging them down. 

Can Rent Count as Savings? 

In some cases, yes—but it depends on the lender. A few lenders will accept a history of consistent rental payments as a form of genuine savings, especially for first-home buyers. This approach can work well for renters who’ve been paying amounts equivalent to a mortgage and can show a stable financial pattern. 

However, it’s not a universal policy, so speak with a broker to find out which lenders offer this flexibility.