Determining Your Affordable Budget

The basics of borrowing capacity

Your borrowing capacity refers to the maximum amount you're eligible to borrow from a lender. It depends on several factors:

Income
Expenses
Existing debts
Credit history
Deposit size

Lenders use this info to determine a loan amount you can comfortably repay.

How lenders evaluate your eligibility

They assess your income stability, including employment status, salary, or overseas income.
They scrutinize your expenses, such as living costs, existing loans, and dependents.
They verify your deposit source, ensuring funds are legitimate and can be used as a down payment.

Documenting your finances

Proper documentation streamlines your application. Common requirements include:

ID proof: passport, driver's license
Income proof: payslips, bank statements, overseas income documents
Assets and liabilities: savings accounts, other property, debts
Overseas financial statements: translated and certified if necessary
Visa details: to confirm your eligibility for Australian borrowing

Tip: Start gathering these early. Lenders may ask for additional info, especially if you're a temporary visa holder.

Deposits and sources of funds

In Australia, most lenders require a minimum deposit of 5-20% of the property price. For foreigners or visa holders, the typical deposit ranges from 10-20%.

Your deposit can come from:

Overseas savings: bank accounts, investments
Australian savings: after transfer, from earnings or gifts
Gift funds: from family members, with proper documentation

Converting overseas funds

Transferring overseas savings involves currency exchange and transfer fees. Ensure your funds are "clean," meaning sourced from legitimate means, to satisfy Anti-Money Laundering (AML) requirements. Some lenders may ask for proof of where the money originated.

Important: Large transfers might need to be reported to the Australian Transaction Reports and Analysis Centre (AUSTRAC).

Understanding mortgage products and rates

Interest rates in Australia fluctuate with the Reserve Bank of Australia's (RBA) cash rate. Usually, fixed-rate mortgages lock in a rate for 1-5 years, offering payment certainty. Variable rates move with market conditions, often offering flexibility.

Comparing costs

Interest rate differential: even a 0.5% difference impacts total repayment
Loan term: typically 25-30 years
Additional costs: LMI (Lender's Mortgage Insurance), stamp duty, mortgage registration

LMI and its implications

If your deposit is less than 20%, you'll likely pay LMI. This protects the lender if you default. LMI can be a one-time premium added to your loan or paid upfront.

Example: On a $500,000 property with a 10% deposit ($50,000), LMI might cost between $10,000 and $20,000.

Tip: Aim to save for a larger deposit to avoid LMI, or explore LMI-advantaged products.

Special considerations for international and migrant buyers

Foreign investors and migrants face unique hurdles:

FIRB approval: required for non-residents investing in Australian property.
Visa status: determines borrowing limits and eligibility.
Foreign income verification: may require extra documentation.
Currency exchange risks: fluctuations impact your repayment capacity.

My experience shows that proper planning and early consultation with experts can make a big difference in navigating these complexities.

Eligibility criteria at a glance

Minimum age: usually 18 or older
Income: demonstrated stability, with evidence provided
Deposit: $50,000 for a $500,000 property (for 10% deposit)
Visa requirement: e.g., permanent residents or certain temporary visas
Property type: approval depends on the loan product and purpose

Note: Always check lender-specific policies and current FIRB rules.

Practical steps to assess your budget

Calculate your total income, including overseas earnings.
List all expenses—living costs, debts, insurance.
Determine available savings or funds for deposit.
Use an online mortgage calculator to get a rough estimate.
Visit a mortgage broker for personalized assessments tailored to your situation.

Real-world scenario

Suppose you have AUD 80,000 in savings transferred from overseas. You aim to buy a property valued at AUD 600,000.

Deposit needed: at least 10% = AUD 60,000
Remaining funds cover purchase costs like stamp duty and LMI
Your annual income (verified) is AUD 90,000
Expenses: AUD 2,000/month
Debt: none

Based on these figures, your lender might approve a loan of around AUD 480,000, covering the rest of the property price minus your deposit.

Ongoing costs after purchase

Owning property involves costs beyond the purchase price:

Stamp duty: varies by state, can be up to 5.5% of property value
Council rates and taxes
Insurance: home and land coverage
Mortgage repayments: principal + interest
Maintenance and repairs

Budget for these to ensure long-term affordability.

Final thoughts

Understanding how much you can afford in Australia is the foundation for a successful property purchase. Proper documentation, knowing your deposit sources, and realistic assessments help avoid surprises.

Remember, every financial situation is unique. Seek tailored advice from experienced mortgage brokers or financial advisors to make informed decisions.

“A wise man once said, ‘Don’t look at the price tag alone. Think about what you can afford comfortably over the long run.’” — Unknown

Start planning today, and take confident steps toward your property goals in Australia.

Madhu Chaudhuri

Director

With over 20 years of experience as a mortgage broker, Madhu specializes in helping migrants and expats find loans suited to their unique financial situations. Her expertise in navigating complex lending requirements and understanding diverse financial backgrounds has helped countless families achieve their Australian property dreams.