We’ve all done it. You’re lying in bed at 11:00 PM, scrolling through property apps, looking at a four-bedroom house with a pool and a wine cellar, wondering if a diet of 2-minute noodles for the next thirty years would make the numbers work. Determining "borrowing capacity" is the first real step in the home-buying journey, but it’s a bit more scientific than just multiplying a salary by a random number. At chawlafinance.com.au, the goal is to look at what a client keeps, not just what they earn.
The Mathematics of Borrowing
Lenders look at your financial life through a very specific lens. They aren’t just looking at what you earn; they are looking at your "disposable" income.
- Income Shading: Banks often treat "extra" income differently. Bonuses, commissions, and overtime are frequently "shaded"—meaning the bank might only count 80% of that money to be safe.
- The HEM (Household Expenditure Method): Banks use a benchmark to estimate living costs based on family size. While you might tell the bank you live on "fresh air and sunshine," they have a minimum floor for what they believe a human being costs to maintain.
- The 3% Buffer: This is the big one. Even if the actual mortgage rate is 6%, APRA requires banks to "test" a borrower's ability to pay at 9%. It’s the banking equivalent of making sure you can still run a marathon while wearing a weighted vest.
The "Hidden" Capacity Killers
It is often a surprise what drags borrowing power down. That $10,000 credit card limit you never use? The bank treats it as if it’s fully maxed out. That interest-free "Buy Now, Pay Later" furniture set? It’s a liability that shrinks your potential loan.
To boost borrowing power, chawlafinance.com.au suggests closing unused credit lines and trimming subscriptions before applying. It’s significantly easier than asking a boss for a 20% raise on Monday morning.