Common Mistakes and Factors Affecting Your Borrowing Capacity

Understanding your borrowing capacity is crucial when planning to purchase your first home or investment property. As a pharmacy assistant, knowing how lenders assess your financial situation can help you prepare a stronger Home Loan application and secure the loan amount you need.

What Is Borrowing Capacity?

Borrowing capacity refers to the maximum loan amount a lender will approve based on your financial circumstances. This calculation considers multiple factors including your income, expenses, existing debts, and the current interest rate environment. Lenders use sophisticated assessment tools to determine how much you can comfortably repay without experiencing financial hardship.

When applying for a home loan, lenders typically assess your capacity using a higher interest rate than current market rates. This buffer ensures you can still meet repayments if interest rates rise during your loan term.

Key Factors That Influence Your Borrowing Capacity

Income Assessment

Your gross annual income forms the foundation of borrowing capacity calculations. As a pharmacy assistant, lenders will review:

• Base salary from your primary employment
• Overtime payments (if regular and consistent)
• Secondary income sources
• Any allowances or bonuses

Lenders typically require recent payslips and bank statements to verify your income. For pharmacy assistants working multiple roles or casual positions, demonstrating consistent earnings over 6-12 months strengthens your application.

Monthly Expenses and Living Costs

Lenders conduct thorough assessments of your spending patterns using bank statements and declared expenses. They examine:

• Housing costs (rent, utilities, maintenance)
• Transportation expenses
• Insurance premiums
• Personal expenses and entertainment
• Existing loan repayments

The Household Expenditure Measure (HEM) is often used as a benchmark for minimum living expenses, regardless of your declared spending.

Existing Debts and Credit Commitments

All existing financial obligations impact your borrowing capacity:

• Personal loans and car loans
• Credit card limits (not just balances)
• Buy-now-pay-later arrangements
• Investment property loans
• HECS-HELP debt

Credit card limits particularly affect borrowing capacity, as lenders assume you could utilise the full limit regardless of current balances.

Understanding Loan to Value Ratio (LVR)

The loan to value ratio represents the loan amount as a percentage of the property's value. Most lenders require LVRs below 80% to avoid lenders mortgage insurance (LMI). For pharmacy assistants with smaller deposits, understanding LVR helps in:

• Planning deposit requirements
• Calculating potential LMI costs
• Accessing special programs like the Home Guarantee Scheme or 5% Deposit Scheme for Pharmacists

Interest Rates and Borrowing Capacity

Both variable interest rate and fixed interest rate options affect borrowing calculations differently. Lenders assess applications using:

Assessment Rates: Typically 2-3% above current home loan interest rates
Serviceability Buffers: Additional margins to account for rate increases
Rate Type Considerations: How variable home loan rates versus fixed interest rate home loan products impact long-term affordability

Understanding these calculations helps when calculating home loan repayments and planning your budget.

Common Mistakes That Reduce Borrowing Capacity

1. Maintaining High Credit Card Limits
   Even unused credit facilities reduce borrowing power. Consider reducing limits before applying.

2. Irregular Income Documentation
   Ensure consistent income reporting across payslips, tax returns, and bank statements.

3. Overlooking All Expenses
   Accurately declare all spending, including subscriptions, memberships, and irregular payments.

4. Multiple Credit Applications
   Each application creates credit enquiries that may impact your credit score and borrowing assessment.

Preparing for Your Home Loan Application

Successful preparation involves gathering comprehensive documentation:

• Recent payslips (typically 2-3 months)
• Tax returns and payment summaries
• Bank statements showing savings patterns
• Details of existing debts and commitments
• Employment confirmation letters

Many pharmacy assistants benefit from getting loan pre-approval before house hunting. This process provides clarity on your borrowing capacity and strengthens your position when making property offers.

Maximising Your Borrowing Capacity

Several strategies can improve your borrowing position:

Build Genuine Savings: Demonstrate consistent saving patterns over 3-6 months
Reduce Existing Debts: Pay down personal loans and credit card balances
Consider Offset Accounts: These products can improve your overall financial position
Stable Employment: Maintain consistent employment in the pharmacy sector
Professional Assistance: Work with specialists who understand pharmacy industry employment patterns

Access Home Loan Options Across Australia

Pharmacy assistants can access Home Loan options from banks and lenders across Australia, each with different assessment criteria and interest rate discounts. The streamlined application process varies between lenders, making professional guidance valuable when comparing options.

Consider exploring specialised programs such as LMI Waivers for Pharmacists or Low Deposit Loans for Pharmacists that may enhance your borrowing capacity.

Understanding borrowing capacity empowers you to make informed decisions when buying a home. While the application process involves multiple considerations, proper preparation and professional guidance can help you secure suitable financing for your property goals.

Call one of our team or book an appointment at a time that works for you to discuss your specific borrowing capacity and explore the Home Loan options available to pharmacy assistants across Australia.