How Much Can I Borrow for a Home Loan in Australia 2026

Figuring out your borrowing power is the first real step toward buying property in Australia — and in 2026, the rules are more specific than most buyers realise. Banks don't simply look at your salary and hand you a number. They run a serviceability assessment that stress-tests your finances at a higher rate, benchmarks your living costs against a national floor, and counts every debt you hold — including credit card limits you never use.

Whether you're buying your first home in Sydney, upsizing in Melbourne, or investing in Brisbane, understanding how lenders calculate borrowing capacity puts you in a stronger position from day one.

Use the free borrowing power calculator to get a personalised estimate in under a minute — no signup required.

Last updated: May 2026.

Key takeaways

• Rule of thumb: Most lenders will approve loans of roughly 4–6 times your gross annual income, subject to expenses and debts.
• APRA's 3% serviceability buffer means your loan is stress-tested at your actual rate plus 3 percentage points — so a 6.5% loan is assessed at 9.5%.
• HEM (Household Expenditure Measure) is the minimum living-expense floor lenders use — your declared expenses must meet or exceed it.
• Every $10,000 of credit card limit reduces your borrowing capacity by roughly $40,000–$50,000, even with a $0 balance.
• Each dependant reduces borrowing capacity by approximately $30,000–$50,000 depending on the lender.

Table of contents

1. How banks actually calculate your borrowing power
2. The APRA 3% serviceability buffer explained
3. What is HEM — the living expense floor
4. How debts and dependants reduce your capacity
5. Worked examples: real income scenarios
6. How to maximise your borrowing power
7. Frequently asked questions
8. Next step: get your personalised estimate

How banks calculate your borrowing power

Your borrowing power is the maximum loan amount a lender will approve based on your ability to service (repay) the debt. The calculation has four moving parts: income, living expenses, existing debts, and the stress-test interest rate.

The basic formula works like this:

1. Start with your gross income (before tax).
2. Subtract your assessed living expenses (your declared costs or the HEM floor, whichever is higher).
3. Subtract repayments on any existing debts — HECS-HELP, car loans, personal loans, credit cards.
4. Divide whatever's left by the monthly repayment at the stress-test rate (your actual rate + 3%).

Whatever loan size that remaining surplus can service at the stress-test rate is roughly your borrowing limit.

As a rough rule of thumb, most Australians can borrow somewhere between 4 and 6 times their gross annual income — but that multiple shrinks quickly once debts, dependants and high living expenses are factored in.

These are indicative ranges only based on estimates generated through Leadkit's borrowing power calculator using 2026 Australian lending benchmarks. Your actual borrowing capacity will depend on your individual circumstances and the lender you choose. This is a price indication only — your mortgage broker or lender will confirm the final figure after a full assessment.

The APRA 3% serviceability buffer

The single biggest reason your borrowing power is lower than you expect is APRA's mandatory serviceability buffer.

Since 2021, the Australian Prudential Regulation Authority (APRA) has required all authorised deposit-taking institutions — banks, credit unions and building societies — to assess new home loan applications at an interest rate at least 3 percentage points above the loan's actual rate. As of May 2026, APRA has confirmed the buffer remains at 3%.

In practical terms: if a lender is offering you a variable home loan at 6.2%, your loan is assessed as if you were paying 9.2%. That's a substantial difference. A $600,000 loan at 6.2% has monthly repayments of roughly $3,650. At the 9.2% test rate, those repayments jump to approximately $4,900. The lender needs to see that your surplus income can cover the higher figure.

Why does the buffer exist? It protects borrowers from rate rises. If the RBA lifts the cash rate by 2–3 percentage points over the life of your loan — which has happened before — the buffer means you were already proven capable of handling it at application.

The buffer is applied under APRA's Prudential Practice Guide APG 223 and is a core part of responsible lending obligations under the NCCP Act (National Consumer Credit Protection Act). It's not negotiable with lenders, and no mortgage broker can get it waived.

What is HEM — the living expense floor

HEM stands for Household Expenditure Measure, a benchmark derived from the ABS Household Expenditure Survey. It represents a modest but acceptable standard of living for different household compositions across Australia.

Lenders are required to use whichever is higher — your declared living expenses, or the relevant HEM figure for your household type (single, couple, family, number of dependants, location). In most cases for first home buyers and younger households, HEM is the binding floor.

This matters because many people understate their living costs when applying for a loan. You might say your expenses are $2,500 per month, but HEM for a couple in Sydney might sit at $3,200. The lender uses $3,200 — making your assessed surplus smaller, and your maximum loan size lower.

HEM figures are not publicly published in full detail, but mortgage brokers know the approximate benchmarks for each lender. The practical upshot: don't try to game your expense declaration. Lenders cross-check bank statement data, and an inflated application can result in rejection or, worse, a loan you can't actually afford.

Across the home loan applications processed through Leadkit's partner network, the living expense line is consistently where borrowers are surprised — particularly households with children, where HEM rises meaningfully for each dependant.

How debts and dependants reduce your capacity

Existing debts

Every debt you hold reduces your assessed surplus and therefore your maximum loan. The key ones:

Credit cards — lenders assess your credit limit, not your balance. A $10,000 limit they assume you could max out overnight. The repayment on a theoretical $10,000 balance at a standard stress-test rate reduces your borrowing capacity by approximately $40,000–$50,000. If you have a $20,000 limit across two cards, that's potentially $80,000–$100,000 shaved off your maximum loan — for cards that may be at zero balance.

Practical tip: cancel credit cards you don't use before applying. Even reducing a $20,000 limit to $5,000 can materially increase your capacity.

HECS-HELP debt — HECS repayments are compulsory once your income exceeds the threshold (currently around $54,000 gross). Lenders treat HECS repayments as a fixed outgoing. A $20,000 HECS balance might reduce your borrowing capacity by $40,000–$60,000 depending on your income level and which lender's policy applies.

Personal loans and car loans — these are assessed at their actual monthly repayment, which directly reduces your surplus.

DSR — Debt Service Ratio is a metric some lenders use to ensure your total debt repayments (including the new loan) don't exceed a certain proportion of your gross income. Most lenders target a maximum DSR of around 35–40%.

Dependants

Each child increases the HEM floor — more living expenses are assigned to your household. The typical reduction in borrowing capacity per dependant ranges from $30,000 to $50,000, though this varies significantly by lender and household income level.

A couple with two children earning $160,000 combined will typically borrow $150,000–$250,000 less than the same couple without children.

Worked examples

These scenarios illustrate how the factors above interact. They're indicative only — use the free borrowing power calculator for a figure based on your actual situation.

Scenario 1 — Single person, $100,000 gross income, no debts

Estimated borrowing capacity: $550,000–$650,000

At a 6.2% rate, the stress-test sits at 9.2%. On a $100,000 gross income with no dependants and living expenses meeting HEM, most lenders will approve somewhere in this range. The variability comes from different lenders' HEM benchmarks and expense policies.

After a standard 20% deposit, this puts a purchase price of up to roughly $800,000 within reach — viable for a unit in outer Sydney, or a house in many regional centres and most of Brisbane and Adelaide.

Scenario 2 — Couple, $160,000 combined income, no debts

Estimated borrowing capacity: $900,000–$1,100,000

Combined incomes assess well because the HEM cost per person is lower on a per-income basis. With no existing debts or dependants, a couple on $160,000 combined is in a strong serviceability position. This budget opens up most suburban markets in Melbourne and Brisbane, and mid-ring Sydney suburbs.

With a 20% deposit, a total purchase budget of $1.1M–$1.375M is realistic.

Scenario 3 — Couple, $160,000 combined, with $20,000 HECS and $20,000 credit card limit

Estimated borrowing capacity: $750,000–$900,000

The HECS debt reduces capacity by roughly $40,000–$60,000. The $20,000 credit card limit (even at zero balance) reduces capacity by a further $80,000–$100,000. Together, the same couple loses $120,000–$160,000 from their maximum loan compared to Scenario 2.

This is one of the most common surprises first home buyers face. Closing that credit card before applying can recover a significant slice of capacity.

Methodology note: these ranges are based on estimates generated through Leadkit's borrowing power calculator applying current Australian lender benchmarks and APRA's 3% serviceability buffer. Figures are illustrative only — not financial advice.

How to maximise your borrowing power

You can't change your income overnight, but several things within your control directly affect your assessed capacity.

Close or reduce credit card limits before applying. This is the fastest and most impactful lever for many borrowers. A lender's online form or a quick call to your bank can reduce a limit — do it at least 30–60 days before applying so it appears on your credit file.

Pay down personal loans and car loans to reduce your monthly debt obligations. Even reducing a balance by $5,000–$10,000 can shift your DSR meaningfully.

Don't take on new debts in the six months before applying. New car finance, a personal loan, or a buy-now-pay-later account all count against you.

Use a mortgage broker. Different lenders apply different HEM figures and have different DTI policies. A broker knows which lenders suit your profile — self-employed, high HECS, investor, first home buyer. ASIC MoneySmart's mortgage broker guide is a good starting point.

Check your LVR (Loan-to-Value Ratio). An LVR above 80% triggers LMI (Lenders Mortgage Insurance), which adds thousands to the loan cost. If you're close to 20% deposit, it's often worth waiting or getting a gift from family to clear the LMI threshold. Use the LMI calculator to see what LMI would cost at different deposit levels.

Consider stamp duty when calculating what you can actually afford. Stamp duty is paid upfront and can't be borrowed — it comes out of your deposit. Use the stamp duty calculator to see what applies in your state.

Also factor in your ongoing repayments with the home loan repayment calculator — knowing your monthly repayment at various loan sizes helps you figure out what you're actually comfortable committing to, not just what a lender will technically approve.

Frequently asked questions

Q: How does the APRA 3% buffer affect how much I can borrow?

A: The APRA serviceability buffer requires lenders to assess your loan repayments at your actual rate plus 3 percentage points. If you're offered a rate of 6.5%, the lender tests whether you can afford repayments at 9.5%. This reduces your maximum loan compared to what your income would support at the actual rate — typically by $100,000–$200,000 on a mid-range income. The buffer is mandatory for all APRA-regulated lenders and cannot be waived.

Q: What is HEM and how does it affect my home loan application?

A: HEM — Household Expenditure Measure — is a benchmark living cost figure derived from ABS data. Lenders use whichever is higher: your declared monthly expenses or the HEM figure for your household type. If you declare $2,200 per month but HEM is $3,100, the lender uses $3,100. The higher the expense figure, the smaller your assessed surplus and the lower your maximum loan. Families with children face higher HEM figures — a major reason couples with kids borrow less than child-free couples on the same income.

Q: Does having a HECS debt reduce my borrowing power?

A: Yes. Lenders treat HECS-HELP repayments as a compulsory outgoing, similar to a personal loan repayment. Because HECS repayments increase with income (they're percentage-based once you exceed the threshold), they reduce the surplus income available for mortgage serviceability. A $20,000 HECS balance can reduce your borrowing capacity by $40,000–$60,000 depending on your income level and the lender. Some lenders are more lenient than others on HECS treatment — a mortgage broker can identify the most suitable lender for your situation.

Q: How much can a couple borrow on a combined income of $150,000?

A: A couple on $150,000 combined gross income with no debts or dependants can typically borrow in the range of $840,000–$1,000,000 in 2026, subject to APRA's 3% buffer and the lender's HEM benchmarks. Existing debts (credit cards, HECS, car loans) and dependants will reduce this figure materially. Use the borrowing power calculator to model your specific scenario — it accounts for these variables and gives a personalised estimate.

Q: Do lenders count my credit card limit even if I never use it?

A: Yes — this is one of the most misunderstood aspects of borrowing capacity. Lenders assess your credit card limit, not your balance. The rationale is that you could draw down on that limit at any point, increasing your debt obligations. Every $10,000 of credit card limit reduces your borrowing capacity by roughly $40,000–$50,000. If you have unused cards, closing them (or at minimum reducing the limits) before applying can meaningfully increase your maximum loan. Allow 30–60 days for the change to register on your credit file.

Q: Can I borrow more than 6 times my income?

A: It's increasingly difficult in 2026. APRA introduced DTI (Debt-to-Income) guidance in late 2025 requiring lenders to cap new loans above 6 times gross income to no more than 20% of their new lending book. In practice, most major lenders will decline applications above a DTI of 6:1. Some non-bank lenders apply slightly more flexible policies, but these often come with higher interest rates. A DTI of 5:1 or lower is the comfortable range where most applications succeed without friction.

Q: How do I know if I need to pay LMI?

A: LMI — Lenders Mortgage Insurance — applies when your deposit is less than 20% of the purchase price, meaning your LVR (Loan-to-Value Ratio) exceeds 80%. LMI protects the lender (not you) if you default. Costs typically range from $5,000 to $25,000+ depending on your loan size and LVR. First home buyers may qualify for government guarantees (like the Home Guarantee Scheme administered by Housing Australia) that waive LMI requirements. Use the LMI calculator to estimate your LMI cost at different deposit levels.

Q: What's the difference between pre-approval and actual borrowing power?

A: Borrowing power is an estimate based on your financials — what a calculator or broker conversation gives you. Pre-approval (conditional approval) is a formal, lender-assessed decision that holds for typically 90 days and gives you confidence to make an offer. Pre-approval can come in lower than the calculator estimate once a lender verifies income documents, bank statements and your credit file in full. Always get pre-approval before going to auction.

Next step: get your personalised estimate

The worked examples above are a useful starting point, but your actual borrowing power depends on your income, expenses, existing debts, dependants and the lender you choose.

Use the free borrowing power calculator — enter your details and get a personalised estimate in under a minute. No signup required.

Once you know your range:

• Check monthly repayments with the home loan repayment calculator
• See state-by-state stamp duty costs with the stamp duty calculator
• Explore the full home loan calculators suite — LMI, usable equity, refinancing and more

For independent guidance, ASIC's MoneySmart home loans hub covers first home buyer grants and what to ask a broker. The RBA publishes useful context on Australian housing lending policy.

Disclaimer: This article is general information only and does not constitute financial advice. Borrowing power estimates are indicative only and based on general assumptions — your actual borrowing capacity will depend on your individual financial circumstances and the policies of the lender you apply with. Always seek advice from a licensed mortgage broker or financial adviser before making borrowing decisions.