How Much Can I Borrow: The Facts and Figures

Your borrowing capacity during separation depends on your individual income, committed expenses, and any ongoing financial obligations from the settlement.

Most people going through separation discover their borrowing power looks different than when they applied as a couple. Lenders assess your ability to service a loan based on your income alone, your living expenses as a single household, and any child support or spousal maintenance payments. If you're keeping the family home, they'll also factor in whether you're taking on existing debt or starting fresh. The calculation isn't about what you could borrow before or what feels fair after settlement. It's about what you can service now.

How Lenders Calculate What You Can Borrow

Lenders use a serviceability assessment that takes your gross income, subtracts your committed expenses and living costs, then applies a buffer to ensure you can still afford repayments if interest rates rise. Your committed expenses include any child support you pay, spousal maintenance, existing loan repayments, and credit card limits even if you don't carry a balance. Living costs are assessed using either your declared expenses or a benchmark figure called the Household Expenditure Measure, whichever is higher. The buffer is typically calculated at an interest rate three percentage points above the actual rate you'll pay.

Consider someone earning $95,000 who pays $1,800 monthly in child support and has $8,000 in credit card limits. Even if those cards are paid off, the lender treats them as if they're fully drawn. After tax, committed costs, and applying the Household Expenditure Measure for a single adult with dependents, their serviceability might support a loan amount around $420,000 to $480,000 depending on the lender's policy and the interest rate environment at the time.

Income That Lenders Will Count

Your base salary or wage is the starting point, but lenders also consider other verifiable income. Child support you receive can be included, though most lenders will only count 80% of it and require evidence that payments are consistent and likely to continue for at least two years. Spousal maintenance works similarly. Rental income from an investment property is assessed at around 80% to allow for vacancies and costs. Overtime, bonuses, and commission are counted if you can show at least a 12-month history and they're likely to continue.

If you're self-employed, lenders assess your income differently. Most require two years of tax returns and apply the net profit after deductions and tax. In our experience, newly self-employed clients often face a waiting period before their income can be used for borrowing capacity calculations, even if their cash flow is strong. If you've been self-employed for less than two years, some lenders offer low doc options that rely on accountant declarations or business activity statements rather than full financials, though these typically come with rate premiums and lower loan-to-value ratios.

Expenses That Reduce Your Borrowing Power

Child support and spousal maintenance you pay are deducted from your income before serviceability is calculated. Credit card limits, personal loans, car leases, and any existing home loan repayments all reduce what you can borrow. If you have a $20,000 credit card limit, lenders assume a minimum monthly repayment even if you clear it each month. This is why many brokers recommend reducing or closing unused credit before applying for a home loan.

Ongoing costs related to dependents are factored into the Household Expenditure Measure, but lenders also assess discretionary spending if your declared expenses are higher than the benchmark. Childcare, school fees, and medical costs are scrutinised if they push your total expenses significantly above the norm. One scenario we regularly see involves someone who underestimates their actual living costs during the application, only to find repayments are difficult once the loan settles. Accurate disclosure during the assessment protects you as much as it satisfies the lender.

Deposit Size and Loan to Value Ratio

The amount you can borrow also depends on how much deposit you have and the type of property you're buying. Lenders assess risk using the loan-to-value ratio, which is the loan amount divided by the property value. If you're borrowing with less than a 20% deposit, you'll typically need to pay Lenders Mortgage Insurance unless you qualify for a waiver or government scheme. A higher deposit means a lower LVR, which can increase your borrowing capacity because the lender's risk is reduced.

If you're accessing equity from a property settlement, the usable amount depends on the property's current value and any debt attached to it. Equity isn't cash until it's released, and releasing it means either selling the property or refinancing to draw funds out. If you're keeping the family home and buying out your former partner, the refinance needs to cover the buyout amount and any remaining mortgage, which can stretch your serviceability depending on your income.

Split Income Scenarios and Co-Borrowing

Some people going through separation consider co-borrowing with a new partner, family member, or even a friend to increase their borrowing capacity. Lenders will assess all applicants' income and expenses, which can help if the co-borrower has strong serviceability. The risk is that both parties are jointly liable for the full debt, regardless of who lives in the property or contributes to repayments. If you've recently exited a co-borrowing situation, adding another one requires careful consideration of what happens if circumstances change again.

Another option is a guarantor loan, where a family member uses their property as security to support your application. This can help you borrow more or avoid paying LMI, but the guarantor is liable if you default. It's a structure that works when there's a clear plan to remove the guarantee once you've built enough equity, usually within a few years.

What to Do When Your Serviceability Falls Short

If the amount you can borrow is less than what you need, you have a few options. Increasing your deposit reduces the loan amount required and can bring the borrowing within reach. Reducing committed expenses by paying down or closing credit accounts improves your serviceability. If you're receiving child support or spousal maintenance, waiting until you have a consistent 12-month history can make that income usable. In some cases, choosing a less expensive property or a different location makes the numbers work without stretching your budget.

Paying down non-deductible debt like credit cards or personal loans improves your position for two reasons. It reduces your monthly commitments, which increases serviceability, and it demonstrates financial discipline, which lenders assess as part of your application. If you're considering debt consolidation, doing this before applying for a home loan rather than as part of it can simplify the assessment.

The Role of Pre-Approval

Getting home loan pre-approval tells you exactly how much you can borrow before you start looking at properties. Pre-approval is based on a full assessment of your income, expenses, and financial position, and it's valid for three to six months depending on the lender. It doesn't lock you into a specific property, but it does lock in your borrowing capacity at the time of approval. If your financial position improves after pre-approval, you can update the application. If it worsens, the pre-approval may no longer hold.

Pre-approval also clarifies what loan structure suits your situation, whether that's variable, fixed, or split, and whether an offset account would benefit your repayment strategy. Knowing your capacity and your options makes property search focused rather than speculative, which matters when you're rebuilding after separation and want certainty about what you can afford.

Call one of our team or book an appointment at a time that works for you. We assess your borrowing capacity based on your current position, not what it used to be, and connect you with lenders who understand serviceability in separation scenarios.

Frequently Asked Questions