How much can you afford to borrow for a home on your salary?
17 May 2023
Find out how much you can afford to borrow on a $75k, $100k or $125k salary without suffering from mortgage stress.
If you are thinking about getting on the property ladder one of the questions you’ll probably be asking yourself is how much can you afford to spend on a home. The answer to this comes down to three key factors.
The first is how much you have saved already. You will need at least a 5% deposit to secure a loan and, if you want to avoid lenders mortgage insurance, in most cases you’ll need a 20% deposit. You’ll also need some extra money for the upfront costs that come with buying a property such as stamp duty and conveyancing fees.
The second factor is how much a lender will actually lend you. “Lenders ultimately are making sure that you can afford the loan you’re applying for,” explained Marcus Roberts, founder of Brighter Finance. “Some of the factors that go into their decision include your income and stability of employment, your living expenses, your other debts and liabilities, your credit history and whether you’ve met previous obligations etcetera.” There are a number of online calculators you can use that will provide an estimate but if you want to be certain then it’s best to get formal pre-approval.
Finally, it’s important to think about how much you can realistically afford in repayments. You don’t want to stretch yourself too thin and end up suffering from mortgage stress. Generally speaking, if you want to avoid mortgage stress you should be spending less than 30% of your pre-tax income on your home loan repayments. If you’re on a high income you may be able to afford to borrow more but 30% is one of the most commonly used benchmarks.
How much can you afford to borrow if you want to avoid mortgage stress?
The Canstar research team crunched the numbers to show you how much you can afford to borrow on various salaries assuming less than 30% of your gross income goes towards mortgage repayments. It also factors in the serviceability buffer of 3 percentage points that lenders need to include when assessing your application.
As the table below shows, if you are on a single income of $75,000 a year you could afford to borrow $229,700. Assuming you had a 20% deposit, that would mean you could potentially buy a home worth about $287,125.
A couple with a combined income of $120,000 could afford to borrow about $367,500 which could potentially get them a property worth a little less than $460,000 (again assuming a 20% deposit).
How much can you borrow to avoid mortgage stress?
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| Single Income | ||
|---|---|---|
| Gross Income | Borrowing Capacity | Property Value w/ 20% Deposit |
| $50,000 | $153,000 | $191,250 |
| $75,000 | $229,700 | $287,125 |
| $100,000 | $306,300 | $382,875 |
| $125,000 | $382,800 | $478,500 |
| Joint Income | ||
| Gross Combined Income* | Borrowing Capacity | Property Value w/ 20% Deposit |
| $90,000 | $275,600 | $344,500 |
| $120,000 | $367,500 | $459,375 |
| $160,000 | $490,000 | $612,500 |
Source: www.canstar.com.au – 9/05/2023. Borrowing capacity calculation assumes less than 30% of gross income is utilised for mortgage repayments. Monthly repayment calculation assumes an assessment rate of 9.16% (Canstar average owner-occupier variable home loan available for a $500k loan, P&I, 80%LVR, excluding first home buyer only, introductory and other special condition loans – with 3% buffer applied), principal and interest repayments and 30 year loan term. *Combined income of $90k, $120k and $160k is made up of single incomes of $50k and $40k, $75k and $45k, and $100k and $60k, respectively. Borrowing capacity rounded down to the nearest $100.
Compare Home Loans (Refinance with variable rate only) with Canstar
If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for homeowners looking to refinance. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest to highest). Products shown are principal and interest home loans available for a loan amount of $500,000 in NSW with an LVR of 80% of the property value. Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. Use Canstar’s home loans comparison selector to view a wider range of home loan products. Canstar may earn a fee for referrals.
Cover image source: StratfordProductions/Shutterstock.com
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This article was reviewed by our Editor-at-Large Effie Zahos before it was updated, as part of our fact-checking process.
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