How to Boost Your Borrowing Power Before Applying for a Mortgage

How to Boost Your Borrowing Power Before Applying for a Mortgage

You’ve crunched the numbers, browsed the listings, and finally decided it’s time to buy your dream home. But when you start talking to lenders, you realise something, the amount you want to borrow isn’t quite matching what they’re willing to lend.

This gap between your property goals and your borrowing limit can be frustrating, but it’s also something you can influence. With the right preparation and strategy, you can boost your borrowing power, sometimes by tens or even hundreds of thousands of dollars.

In this guide, we’ll unpack how lenders calculate borrowing power, what influences it, and the practical steps you can take to strengthen your position before applying for a mortgage.

What Is Borrowing Power?

Borrowing power, also known as loan serviceability, is the maximum amount a lender is willing to let you borrow based on your income, expenses, debts, and financial situation.

In simple terms, it’s the lender’s way of determining how much you can comfortably repay each month without putting yourself at risk of defaulting.

Every lender has its own formula, but they all assess three core areas:

• Income: Salary, bonuses, rental income, or side business earnings.
• Expenses: Living costs, dependants, and lifestyle spending.
• Debt obligations: Credit cards, personal loans, car finance, and buy-now-pay-later accounts.

Once the lender reviews these details, they apply a serviceability buffer, typically around 3% above the current interest rate. to ensure you can still meet repayments if rates rise.

Your borrowing power is then calculated from the remaining disposable income after all expenses and buffers are applied.

Why Boosting Borrowing Power Matters

Improving your borrowing power isn’t just about qualifying for a higher loan. It can also:

• Help you access better properties in more desirable areas.
• Strengthen your position when negotiating with lenders.
• Increase your chances of securing favourable loan terms (like lower interest rates).
• Reduce the stress of last-minute surprises during pre-approval.

Even a modest increase in borrowing capacity — say, $30,000 to $50,000 — can make a big difference when house-hunting in Australia’s competitive property market.

1. Pay Down Existing Debts

One of the fastest and most effective ways to boost your borrowing power is to reduce your existing liabilities.

Lenders don’t just look at the balance of your debts — they also factor in the repayments you’re committed to each month. Even small obligations can significantly impact your loan eligibility.

Here’s what to prioritise:

• Clear credit cards: Even unused cards reduce borrowing power because lenders assume a percentage of the limit as potential debt. Consider lowering your limit or closing unnecessary cards.
• Pay off personal or car loans: These high-interest debts reduce your income available for a mortgage.
• Consolidate small debts: If possible, consolidate multiple small debts into one lower-rate loan to streamline repayments.

By reducing monthly commitments, you’ll appear less risky to lenders and free up more income for your mortgage.

2. Keep Your Credit Score in Good Shape

Your credit score is a snapshot of how responsible you’ve been with borrowing in the past. A strong score shows lenders that you’re a low-risk applicant, which can improve both your borrowing capacity and the range of lenders willing to work with you.

To strengthen your credit profile:

• Always make repayments on time (even for utilities or phone bills).
• Avoid applying for multiple credit products at once — too many applications can signal financial instability.
• Check your credit report annually via services like Equifax or Experian to correct any errors or outdated entries.
• Keep credit card balances well below your limits.

Even small improvements to your score can open doors to better lending options and lower interest rates, which in turn boosts your overall affordability.

3. Cut Down on Everyday Expenses

It’s not just your income that matters — it’s what’s left after your expenses.

In recent years, Australian lenders have become more detailed in how they assess household spending. They often categorise your expenses into essentials (like groceries, utilities, and transport) and discretionary spending (like dining out, entertainment, or streaming services).

Before applying for a mortgage:

• Track your spending for 3–6 months using your banking app or a budgeting tool.
• Identify areas where you can cut back, especially on discretionary expenses.
• Cancel unused subscriptions and memberships.
• Reduce takeaway meals and lifestyle luxuries — even temporarily.

Most lenders review your last few months of bank statements, so consistent spending discipline in the lead-up to applying can meaningfully improve your serviceability ratio.

4. Increase Your Income (Even Temporarily)

Boosting your income is another direct way to strengthen your borrowing power. While easier said than done, there are realistic ways to increase earnings in the short to medium term:

• Take on extra shifts or overtime if your employer allows it.
• Explore freelance work or side gigs that generate stable additional income.
• If applicable, combine incomes with your partner to apply jointly.
• Review and update your tax deductions to ensure your income is reported accurately and fully.

Most lenders require evidence of income stability, typically six months’ worth of consistent earnings, so if you plan to increase your income through a side business or new job, establish that track record early.

5. Lower Your Credit Card Limits

This is a commonly overlooked factor. Even if you have a zero balance, lenders still consider your credit card limit as potential debt. For example, if you have a $10,000 limit, the lender might calculate 3% of that ($300) as a monthly repayment obligation, even if you never use the card.

Lowering or cancelling unused credit cards can have an immediate and measurable impact on your borrowing capacity.

6. Save a Larger Deposit

A bigger deposit doesn’t just reduce how much you need to borrow, it also strengthens your overall application.

With a higher deposit:

• You’ll need to borrow less, improving your loan-to-value ratio (LVR).
• You may qualify for better interest rates and avoid Lenders Mortgage Insurance (LMI).
• Lenders may view you as more financially disciplined and stable.

In Australia, saving at least 20% of the property value helps you bypass LMI and potentially save tens of thousands of dollars. If you can’t reach that, consider ways to increase your deposit faster, such as:

• Channelling tax refunds or bonuses into savings.
• Using a First Home Super Saver Scheme (FHSSS) if you’re a first-home buyer.
• Accepting genuine gifts or family guarantees (with proper documentation).

7. Avoid Major Purchases Before Applying

It might be tempting to buy new furniture, a car, or gadgets as you prepare for a new home, but large purchases can hurt your borrowing power.

New debt or “buy now, pay later” plans increase your monthly obligations and lower your disposable income. Lenders scrutinise your recent financial activity, so it’s best to avoid big spending in the three to six months before applying for a loan.

If you must make a large purchase, ensure it’s well before your pre-approval stage and that you maintain enough savings buffer.

8. Choose the Right Loan Structure

Not all loans are created equal. Some structures can actually enhance your borrowing capacity depending on how they’re assessed.

For instance:

• Interest-only periods can reduce repayments temporarily and improve serviceability (although they may cost more long-term).
• Longer loan terms (like 30 or 35 years) can lower your monthly repayment calculation.
• Joint applications can combine incomes and improve affordability ratios.

However, extending loan terms or interest-only options should align with your overall financial goals — not just short-term approval. A qualified mortgage broker, like RateSeeker, can model different scenarios and help you choose a structure that balances affordability and sustainability.

9. Keep Your Employment Stable

Lenders prefer stability. If you’ve recently changed jobs or industries, they may see that as a higher risk, especially if you’re still on probation.

If possible, avoid switching employers just before applying for a mortgage. Most lenders want to see at least six months of continuous employment with your current employer or two years in the same industry.

If you’re self-employed, ensure your financial statements, BAS, and tax returns are up to date, showing consistent income.

10. Seek Professional Guidance Early

Every borrower’s situation is different. A mortgage broker can help you assess your financial profile, identify what’s limiting your borrowing power, and recommend personalised strategies to improve it before applying.

RateSeeker’s brokers, for example, use lender-specific serviceability calculators to model scenarios, so you’ll know exactly how much you can borrow with each lender and what changes could help you qualify for more.

This proactive approach ensures you don’t waste time applying for loans that won’t be approved or stretch your finances beyond comfort.

Example: How Small Tweaks Can Make a Big Difference

Let’s imagine two applicants, both earning $90,000 a year.

• Applicant A keeps two credit cards with $15,000 total limits, a $10,000 car loan, and spends around $4,000 a month on discretionary expenses.
• Applicant B closes one card, pays off the car loan, reduces monthly expenses to $3,200, and saves an extra $15,000 towards a deposit.

Even though they earn the same income, Applicant B could have $70,000–$100,000 more in borrowing power, simply by adjusting their spending and debt levels.

That’s how strategic financial preparation can translate into real home-buying results.

Common Mistakes That Reduce Borrowing Power

1. Underestimating living costs. Lenders will verify your spending, so lowballing estimates can backfire.
2. Applying for multiple loans. Every credit inquiry leaves a mark on your credit report, reducing trust.
3. Ignoring existing debt obligations. Even small loans or buy-now-pay-later plans can add up.
4. Not accounting for interest rate buffers. Always test your affordability against higher rates.
5. Skipping professional advice. Many borrowers miss opportunities to optimise because they go directly to one bank instead of comparing lenders.

The Bigger Picture: Borrowing Power and Financial Health

Boosting borrowing power isn’t about stretching yourself too thin, it’s about creating the financial foundation for a sustainable home loan.

When you manage your money smartly, pay down debt, and demonstrate responsible habits, you’re not just improving numbers on a spreadsheet. You’re showing lenders that you can manage a long-term financial commitment with confidence.

And that’s exactly what they want to see.

Final Thoughts: Build Your Financial Strength Before You Apply

Improving your borrowing power takes planning, patience, and a clear understanding of how lenders think. But even small, consistent changes can make a major impact on your loan approval and the home you can afford.

By reducing debt, cutting expenses, increasing savings, and working with an experienced mortgage broker, you’ll be in the best position to borrow smarter — not harder. At RateSeeker, we specialise in helping Australians understand their borrowing capacity and identify the best-fit home loan for their goals. Whether you’re buying your first home, upgrading, or investing, our expert brokers can guide you through every step with personalised strategies that maximise your options.