How much can I borrow?
At Homebuyers Centre, finance always comes first. It’s not something most of us enjoy thinking about, however, it’s very important when it comes to buying your first home. So, we’ll keep it short and sweet.
Read more below about everything you need to know to see how much you can borrow for your dream home!
What the banks need to know
Before approving your home loan, your chosen lender will want to assess how you currently manage your finances.
Understanding this for yourself is important before applying for your home loan, so take some time to look at your current debts, repayments and how you manage them.
Terms you should know
LTI, LMI, LVR
LMI (loan-to-income ratio)
LTI (loan-to-income ratio). This is basically your income compared to the loan amount you’d be borrowing from a lender. This equation is used to measure your ability to make loan repayments without suffering financial hardship.
Loan-to-value ratio
Loan-to-value ratio (LVR) is the percentage of the amount you are borrowing from a lender and the value of the home and land you are purchasing. For example, if you would like to borrow $400,000 from the bank and the value of the property you’d like to purchase is $500,000 your LVR would be 80% (($400,000 /$500,000) x100).
Generally, banks prefer your LVR to be 80% or less, or you’ll need to get Lender’s Mortgage Insurance (LMI), however there are still some really great low deposit options for those wanting to get into their first home when the LVR is higher than 80%.
Lenders mortgage insurance
If you want to borrow more than 80% of the property’s value, you may have to pay mortgage insurance (LMI). Mortgage insurance is a one-off payment, usually made when you settle on the property. The amount you pay depends on the loan amount, the value of your property and how much of the purchase price you want to borrow (e.g. 95%). It protects the lender in the event that you can’t meet your repayments and the home is sold with the debt outstanding.
Don’t worry too much about LMI, it’s a factor to consider, but there are some lenders that allow you to get into your home with a lower deposit and don’t require you to pay for Lender’s Mortgage insurance (winning!).
Learn about low deposit options here
Summary
As you can see, there are lots of things you and your lender needs to know before figuring out how much you can borrow. Thankfully, our in-house partners at Resolve Finance are the experts in everything finance, so they can easily help you determine how much you can borrow so that you can get into your dream home. They’re also construction loan specialists so they know all the ins and outs of lending for new home construction, and sometimes more than the traditional banks do! Even if it’s a little less than you were expecting, they can assist you with an exclusive home building course to help you get on the road to homeownership in no time! It’s as simple as that.