Why is my actual pre-approval lower than this calculator shows?

This calculator uses a debt-to-income ratio model, which gives the theoretical maximum. Australian lenders must apply an APRA-mandated serviceability buffer -- they test whether you can afford repayments at the interest rate plus 3%. At a 6.5% rate, that means testing at 9.5%, which significantly reduces the approved loan amount. US lenders also apply their own internal buffers and look at your credit score, employment history and HEM benchmarks.

Does the deposit size affect how much I can borrow?

The deposit directly affects the loan size (purchase price minus deposit), but it doesn't significantly change the maximum loan from a serviceability perspective -- your income and expenses determine that. What the deposit does affect is whether you need LMI (if below 20%), your loan-to-value ratio (LVR), and the interest rate you're offered (lower LVR often gets better rates).

What counts as an expense for this calculator?

Include all regular monthly financial commitments: rent or current mortgage payments, personal loan repayments, car loans, minimum credit card repayments (based on total limit, not current balance), HECS/HELP repayments, child support, BNPL services and any other recurring debt. Do not include living expenses like groceries and utilities -- most lenders benchmark these against HEM (Household Expenditure Measure).

Mortgage Affordability Calculator — Free Real Estate Calculator

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Couple sitting across the desk with their payslips and a dream suburb in mind. Before you pull up any listings you need to know what the bank will actually lend -- based on their income, not their wishlist.

Mortgage Affordability Calculator

Mortgage

Annual gross income ($)

Monthly expenses ($)

Rent, loans, credit cards etc.

Deposit / down payment ($)

Interest rate (% p.a.)

Loan term (years)

Debt-to-income limit (%)

AU banks typically allow 35–40%

Lenders typically limit total debt repayments to 35–40% of gross income (debt-to-income ratio). They also assess living expenses, dependants, credit score and employment stability. This calculator uses a simplified DTI model — actual lending decisions vary by lender.

Reference: ASIC MoneySmart — Mortgage Calculator

ℹ️ Results are estimates for planning purposes. Verify with current standards and a qualified professional.

1 What this calculator does

Calculates maximum borrowing power from gross annual income, monthly expenses, deposit and interest rate using the standard debt-to-income (DTI) ratio model. Shows maximum loan, maximum property price, required monthly repayment and whether LMI (Lenders Mortgage Insurance) applies.

2 Formula & professional reasoning

Max monthly repayment = (Monthly gross income x DTI%) - Monthly expenses
Max loan = Max repayment x [(1 - (1 + r)^-n) / r]
where r = monthly rate, n = total months
Max purchase price = Max loan + Deposit
LMI applies if Deposit < 20% of purchase price

The annuity formula converts a maximum monthly repayment into a maximum loan balance. DTI (Debt-to-Income) is the percentage of gross monthly income a lender will allow as total debt repayments -- typically 28-43% in Australia and the US depending on the lender. The calculator uses 38% as the default but allows adjustment. The max loan is derived from the repayment capacity, not the purchase price -- which is why increasing income or reducing expenses has a larger effect than increasing the deposit.

3 Worked examples

⚠️ Illustrative example only — not clinical or professional instruction.

Basic

Couple buying their first home

Working:

Monthly income: $11,667 | Max repayment: $11,667 x 0.38 - $1,500 = $2,933 | r = 0.062/12 = 0.005167 | n = 360 | Max loan: $2,933 x [(1-(1.005167)^-360)/0.005167]

Answer: Max loan: ~$497,000 | Max purchase price: ~$577,000 | Repayment: $2,933/mo | LMI applies (14% deposit)

💡 $80,000 deposit on $577,000 = 13.9% -- LMI adds approximately $5,970. To avoid LMI they need $115,400 deposit (20% of $577,000).

Standard

Existing homeowner upgrading

Given: Income: $210,000 | Expenses: $2,200/mo | Deposit: $350,000 | Rate: 6.5% | DTI: 38%

Working: Monthly income: $17,500 | Max repayment: $17,500 x 0.38 - $2,200 = $4,450 | Max loan calculation at 6.5% over 30 yrs

Answer: Max loan: ~$700,000 | Max purchase price: ~$1,050,000 | Repayment: $4,450/mo | No LMI (33% deposit)

💡 With 33% deposit no LMI required. Serviceability buffer: lenders often assess at rate + 3% (buffer rate 9.5%) -- actual approved amount may be 20-25% lower.

Advanced

Effect of reducing expenses on borrowing

Given: Income: $160,000 | Scenario A expenses: $3,000/mo | Scenario B expenses: $1,500/mo | Rate: 6.5% | Deposit: $100,000

Working:

Scenario A max repayment: $160,000/12 x 0.38 - $3,000 = $2,067 | Scenario B: $2,067 + $1,500 = $3,567 | Each $500 in expenses reduces the loan by approximately $90,000

Answer: Scenario A max loan: ~$325,000 | Scenario B max loan: ~$561,000 -- $236,000 more

💡 Reducing monthly expenses by $1,500 increases borrowing power by $236,000. This is why lenders scrutinise credit card limits and personal loans -- not just current balances but limits.

4 Sanity check

Standard DTI limits

Australia: APRA buffer at rate +3% | US: front-end 28% PITI, back-end 43% DTI for conforming loans

This calculator uses the simpler debt-to-income model without the APRA buffer -- actual approved amount will be lower.

LMI threshold

Deposit below 20% of purchase price triggers LMI | Approx 0.9-3.8% of the loan amount

LMI protects the lender, not you -- it adds to your loan and increases total repayments.

Serviceability buffer

APRA requires Australian lenders to assess serviceability at interest rate + 3%

If the quoted rate is 6.5%, the bank tests repayments at 9.5% -- reducing the approved loan significantly.

DTI ratio context

Income x 4-6 is a common rule of thumb for borrowing capacity in Australia

A couple earning $140,000 combined can typically borrow $560,000-$840,000 depending on expenses, deposit and rate.

5 Common errors

Error	Cause	Consequence	Fix
Treating the calculator result as the bank's actual offer	Assuming DTI model matches the lender's full assessment	Budget set on a figure the bank will not approve -- disappointment at pre-approval stage	The calculator gives a directional estimate using DTI only. Actual pre-approval includes a 3% serviceability buffer, HEM (Household Expenditure Measure) assessment, credit history and employment verification.
Not including all regular expenses	Only entering obvious bills and missing BNPL, subscriptions and credit card limits	Borrowing estimate is overstated -- loan is declined or reduced at full application	Include ALL regular financial commitments: credit card limits (not just balances), personal loans, HECS/HELP debt (for Australian borrowers), BNPL (Afterpay, Zip) and car loans.
Using current rate without stress-testing a higher rate	Planning at current rates without considering rate increases	Budget stretched at current rates -- financial stress if rates rise 1-2%	Run the calculator at current rate AND at rate + 2-3%. Ensure repayments are manageable at the higher scenario.
Forgetting stamp duty and buying costs in the deposit calculation	Treating the full saved amount as available deposit	Insufficient funds at settlement -- deposit is actually buying costs, not just the property deposit	Subtract stamp duty, conveyancing, building inspection and other upfront costs from total savings to determine the actual available deposit.

6 Reference & regulatory links

🇦🇺 Australia

🇺🇸 United States

7 Professional workflow

Common tools used alongside this one:

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First Home Buyer Cost Summary

After establishing max affordability, use First Home Buyer Cost Summary for the full upfront cost breakdown

→

📊

Rent vs Buy Calculator

Once borrowing power is known, compare buying vs renting over 5 years at that price point

→

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Refinance Break-Even Calculator

Revisit Refinance Break-Even when rates change to assess whether switching lenders improves serviceability

→

Input	Result
Income $140K, expenses $1,500, rate 6.2%	Max purchase ~$577,000
Reducing expenses by $500/mo	Increases borrowing by ~$90,000
LMI threshold	20% deposit of purchase price