Loan Tip: How Much Property can your Deposit Let You Buy?

Discussion in 'Loans & Mortgage Brokers' started by Terry_w, 14th Mar, 2022.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If you have a deposit, you can work out your maximum potential borrowing capacity subject to being able to service. In other words, how much can your deposit let you buy for?


    Step 1, work out what % of the purchase price you want to use as deposit

    Step 2, add on 5%

    Step 3, divide that figure by your deposit amount


    Example

    Homer has $100,000 deposit and wants to avoid LMI so will require an 80% loan. This means his step 1 will be 20% or the amount of deposit he will use

    Step 2 is 5%

    Step 3 is 25%

    Step 4 is the deposit divided by the percentage in step 3 which equals

    $100,000 / 0.25

    = $400,000

    So, if Homer wants to use a 20% deposit he will only be able to buy up to $400,000



    This is not enough so Homer decides to go for 15% deposits.

    This would result in being about to borrow $500,000



    Still not enough so goes for 90% loans and gets a figure of $666,666

    But this would only be the case if the LMI is able to be added on to the loan amount.
     
    Terry_w, 14th Mar, 2022
    #1