How to Increase Your Borrowing Capacity for a Home Loan in Australia
Getting a home loan approved is one thing. Getting approved for the amount you actually need is another.
“Why can I only borrow that much, and what can I do to change it?”
This is one of the most common questions we hear at Echidna Equity. With interest rates rising in early 2026 and living costs still elevated, many Australians are finding their borrowing capacity lower than expected. The good news is there are real, practical steps you can take to increase it.
How Lenders Calculate Your Borrowing Capacity
Before you can improve your borrowing power, it helps to understand how lenders work it out.
Banks and lenders look at your income, your debts, your living expenses, and your loan term. They then stress-test your ability to repay at a higher interest rate, usually around 3% above the current rate. This is called the serviceability buffer.
The lower your debts and expenses, and the higher your income, the more you can borrow.
You can also learn more about how lenders assess what you can borrow in our guide:
How Much Can I Borrow for a Home Loan in Australia?
Clear or Reduce Existing Debts
Every debt you carry reduces how much a lender will let you borrow.
Personal loans, car loans, HECS/HELP debts, and buy-now-pay-later accounts all count against you. Even a small outstanding personal loan can cut your maximum home loan by $50,000 or more, depending on the repayment amount.
Before applying, pay down as much debt as possible. Start with the highest-monthly-repayment debt first, as this has the biggest impact on your borrowing capacity.
Cut Your Credit Card Limits
Lenders treat credit cards differently to other debts. They don’t just look at your current balance. They look at the total credit limit, and assume you could max it out tomorrow.
A $10,000 credit card limit can reduce your borrowing capacity by around $40,000 to $50,000 depending on the lender and your situation.
If you have credit cards you rarely use, consider cancelling them or reducing the limits before you apply. A quick call to your bank is all it takes.
Increase Your Declared Income
This one sounds obvious, but there are a few ways to approach it that people often overlook.
If you have a second job, rental income, or regular overtime, make sure it’s fully documented. Lenders can include this income but they need two years of evidence for most non-salary income sources.
If your salary has recently gone up, make sure your most recent payslips reflect the increase. If you’re self-employed, getting your tax return lodged sooner can make a big difference, especially if your income is trending up.
Reduce Your Living Expenses Before You Apply
Banks use a mix of your declared expenses and benchmark figures from the Household Expenditure Measure (HEM). In some cases they use whichever is higher.
Cutting your actual spending in the three to six months before application can help. Focus on discretionary items: dining out, subscriptions, entertainment. Not only does this reduce your declared expenses, it also builds genuine savings history, which lenders like to see.
Save a Larger Deposit
A bigger deposit doesn’t directly increase your borrowing capacity, but it does a few things that help.
First, it reduces your loan-to-value ratio (LVR). A lower LVR often unlocks better interest rates, which can increase how much you can afford to borrow. Second, it may help you avoid Lenders Mortgage Insurance (LMI), which can be tens of thousands of dollars added to your loan.
Consistent savings behaviour also signals to lenders that you’re reliable with money.
Choose the Right Loan Structure
Not all loan structures are treated the same way by lenders. A longer loan term, for example, means lower monthly repayments, which can improve your serviceability assessment.
Getting the structure right is not a one-size-fits-all exercise. It depends on your income, goals, and the lender’s own policies.
You can also learn more about why your borrowing capacity might be coming in lower than you expected in our guide:
Why Your Borrowing Capacity May Be Lower Than Expected
Apply with the Right Lender
Each lender has their own method for assessing borrowing capacity. The same applicant can get very different results from different banks.
Some lenders are more generous with certain income types, for example commission income, rental income, or income from a trust. Others have more favourable policies for people with higher HECS debts or those who are self-employed.
A mortgage broker can run your numbers across multiple lenders and identify which ones will give you the best outcome for your situation.
Ready to Increase Your Borrowing Capacity?
If you want a clear picture of your borrowing capacity and a plan to improve it, we can help. At Echidna Equity, we do the work to find the right lender and structure for your situation.
There’s no cost to you. We get paid by the lender once your loan settles.
