How Lenders Evaluate Expenses and Debts in Australian Home Loans
When you apply for a mortgage in Australia, lenders don’t just look at your salary. They’ll also assess your living expenses and existing debts to determine how much you can borrow and whether you qualify for a home loan.
Key Expense Categories
1. Household Expenditure Measure (HEM)
The HEM is a standardized benchmark that estimates minimum living costs based on:
- Household size
- Income level
- Location
- Number of dependents
Many lenders use the HEM instead of asking you to detail every expense. For example, a single applicant with three dependents might have a monthly HEM of around $4,800—even if their actual spend is lower.
2. Existing Loan Repayments
All current obligations count, including:
- Mortgages
- Car loans
- Personal loans
- Any other scheduled repayments
Lenders will see how these debts sit alongside the new home loan.
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3. Credit Card Limits
Even if your balance is low, lenders typically assume you’ll pay 3–5% of your total credit limit each month. A $16,000 limit could add about $480/month to your outgoings.
4. HECS/HELP Obligations
Higher Education Loan Program (HELP) debts trigger annual repayments once you earn above the threshold, reducing your net income and borrowing capacity.
5. Other Regular Costs
Additional recurring expenses include:
- Private school fees
- Childcare
- Rent (if you still rent)
- Insurance premiums
Debt-to-Income (DTI) Ratio
The DTI ratio divides your total liabilities by your gross income. Most Australian lenders cap this at around 6:1.
For example, if your annual income is $100,000, your total debts shouldn’t exceed $600,000. If you already owe $450,000, you could borrow up to $150,000 more—subject to your cash flow and expense profile.
Tips to Strengthen Your Application
- Pay down existing debts such as personal or car loans.
- Reduce or cancel unused credit cards to lower assumed repayments.
- Boost your income through overtime, a side gig, or adding another applicant.
- Shop around for lenders who accept your actual expenses instead of using the HEM.
Understanding how lenders view your financial commitments can help you maximise your borrowing power and increase your chances of home loan approval. For a tailored assessment and strategy, explore our financial planning consultation.
