We spotted this question on a well-known Australian finance forum recently, and thought we’d ask Capita General Manager and banker turned long term broker, Gill McLean, to answer it for us.
Of course, in the real world, borrowers have complex and unique circumstances that must be considered when determining how much they are eligible to borrow.
In this blog, we’ve done our best to provide accurate information based on what banks typically deem important when assessing your loan application.
For more detailed information, we highly recommend you speak with one of our mortgage brokers.
Gill McLean: For the banks, the ideal borrower is someone who is employed full time, or has been self-employed in the same industry for a period of 2 years, and has a stable residential history.
They should also have a savings history or equity in an existing property, plus a proven credit history. For example, they should be able to demonstrate an ability to repay other debts, and have no payment defaults on their record.
There are some lenders that will assist a borrower if they don’t meet this critieria, but in this case, the interest rate on their loan may be higher.
Gill McLean: An applicant who is single, with no debts and no dependent children would need to earn approximately $87,000 per annum to qualify for a loan of this amount. The deposit required on a loan amount of $500,000 would be approximately $52,000 if a client were purchasing a property to the value of $530,000.
Of course, these figures have been generated based on generic benchmark information; every borrower and purchase is different, so it will always depend on individual circumstances.
Gill McLean: Some banks will provide loans to clients who have supportive parents that can provide a security guarantee. The parents or family member would need to have equity in an existing property. The bank would then take this as security for the loan.
There are some lenders who would also provide a loan if the deposit was gifted to the borrower, however, special conditions do apply. (Your broker would be able to detail these conditions.)
Gill McLean: With interest rates in Australia so low, the banks’ credit criteria are frequently changing to meet the changing environment. As a result, there are various options now available that were not previously an option for borrowers.
This means many people are able to enter the market today, when they may not have been able to do so a year ago.
For more detailed advice about how much you can borrow, please speak to one of our mortgage brokers. We can work out how much you are eligible to borrow, and pinpoint a lender that saves you more.