Many home buyers are surprised when one lender says they can borrow $700,000 while another lender says they can borrow $850,000.
How can there be such a large difference if your income, expenses and deposit remain exactly the same?
The reality is that every lender has different policies, assessment rates and lending rules. This means your borrowing capacity can vary significantly depending on which lender assesses your application.
Understanding these differences can help you avoid disappointment and potentially unlock additional borrowing power when purchasing your next property.
Why Borrowing Capacity Isn’t the Same Everywhere
Most people assume all banks calculate borrowing capacity the same way.
They don’t.
Each lender uses its own credit policy, servicing calculator and risk assessment process.
Two lenders looking at the exact same application can produce very different outcomes.
This is one of the biggest reasons why working with an experienced mortgage broker can be beneficial.
Assessment Rates Can Be Different
When a lender assesses your loan application, they don’t usually calculate repayments using today’s actual interest rate.
Instead, they apply a higher “assessment rate” to ensure you could still afford the loan if rates increase.
Some lenders use more favourable assessment methods than others.
A lower assessment rate can significantly increase your borrowing capacity.
Living Expenses Matter More Than You Think
Lenders closely review your living expenses.
This includes:
- Groceries
- Utilities
- Insurance
- Childcare
- Entertainment
- Transport
- Existing debts
Some lenders use benchmark expenses while others place greater emphasis on your actual spending habits.
This can create substantial differences in borrowing capacity.
Existing Debts Can Be Treated Differently
Not all lenders assess debts the same way.
This includes:
- Credit cards
- Personal loans
- Car loans
- Buy Now Pay Later accounts
- HECS/HELP debts
For example, one lender may calculate a credit card at its full limit, while another may have a more flexible approach.
The result can be thousands of dollars in additional borrowing capacity.
Self-Employed Borrowers Often See Big Differences
If you’re self-employed, lender policies become even more important.
Some lenders require:
- Two years of financials
- Two years of tax returns
- Consistent income growth
Others may accept:
- One year financials
- Alternative documentation
- Add-backs for certain business expenses
This can dramatically change the amount you can borrow.
Overtime, Bonuses and Allowances
Many borrowers receive additional income beyond their base salary.
Examples include:
- Overtime
- Bonuses
- Commissions
- Shift allowances
- Rental income
Not every lender accepts these income sources the same way.
Some may use 100% of the income.
Others may only use 50% or exclude it completely.
Why Comparing One Bank Isn’t Enough
Many buyers visit their existing bank and assume the result they receive is final.
In reality, another lender may offer:
- Higher borrowing capacity
- Better interest rates
- Lower fees
- More flexible lending policies
A difference of even $100,000 in borrowing capacity could mean the difference between securing your preferred property or missing out.
Real Example
A buyer earning $120,000 per year with a small car loan and one credit card may receive:
- Lender A: $680,000 borrowing capacity
- Lender B: $760,000 borrowing capacity
- Lender C: $830,000 borrowing capacity
The applicant hasn’t changed.
The lender’s policy has.
That’s why comparing multiple lenders is essential before making property decisions.
The Bottom Line
Borrowing capacity isn’t a fixed number.
It’s a moving target that depends on the lender, their policies and how they assess your financial situation.
Before you start inspecting properties, make sure you understand what different lenders may offer.
The right lender could significantly improve your borrowing power and help you purchase the property you really want.
Need to Know What You Can Borrow?
As a Mortgage Broker and Buyers Agent, I help clients compare over 40 lenders, understand their borrowing capacity and develop a property strategy that aligns with their goals.
Whether you’re buying your first home, upgrading, refinancing or investing, I can help you understand your options before you start searching.
Book your FREE Borrowing Capacity & Property Strategy Assessment today.
Discover more from Truth Group Pty Ltd
Subscribe to get the latest posts sent to your email.