Defence Member's Guide to Borrowing Capacity & Home Loans

As an Australian Defence Force member, understanding your borrowing capacity is crucial when you're ready to take the next step in buying a home. Your unique employment situation and financial circumstances can actually work in your favour when lenders assess your Home Loan application.

What is Borrowing Capacity?

Borrowing capacity refers to the maximum loan amount a lender will approve based on your financial situation. This calculation considers your income, expenses, existing debts, and various other factors that demonstrate your ability to meet home loan repayments.

For Defence Force members, lenders often view your employment favourably due to:

• Stable income and job security
• Consistent career progression
• Regular salary increases
• Additional allowances and benefits

Factors That Impact Your Borrowing Capacity

When you apply for a home loan, lenders will examine several key areas:

Income Assessment
Your base salary forms the foundation, but Defence members often receive additional allowances that can boost borrowing capacity. These may include:

• Deployment allowances
• Location allowances
• Special duties pay
• Rental assistance

Lenders typically require recent bank statements and payslips to verify all income sources during the application process.

Debt and Expenses
Your existing commitments significantly influence how much you can borrow. Lenders calculate your debt-to-income ratio and assess:

• Credit card limits and balances
• Personal loans
• Car loans
• Living expenses

Understanding Loan to Value Ratio (LVR)

The loan to value ratio represents the percentage of the property's value you're borrowing. For example, if you're buying a $500,000 home with a $50,000 deposit, your LVR would be 90%.

Higher LVRs typically mean:
• Higher interest rates
• Lenders mortgage insurance (LMI) requirements
• More stringent approval criteria

Defence members often access Home Loan options with favourable LVR terms, and some lenders offer LMI waivers for ADF personnel.

Interest Rates and Your Borrowing Power

Interest rates directly impact your borrowing capacity. Higher rates mean higher repayments, which reduces the loan amount you can afford. When calculating home loan repayments, consider:

Variable Interest Rate Options
• Rates fluctuate with market conditions
• Potential for both increases and decreases
• Often start lower than fixed rates

Fixed Interest Rate Home Loan
• Locked rate for a specific period
• Predictable repayments
• Protection against rate rises

Defence members frequently access interest rate discounts through specialised Home Loan Rates packages designed for ADF personnel.

Maximising Your Borrowing Capacity

Several strategies can help increase your approved loan amount:

1. Build a larger deposit - This reduces your LVR and may eliminate LMI
2. Include all income sources - Ensure allowances and benefits are documented
3. Reduce existing debts - Pay down credit cards and personal loans
4. Consider an offset account - This can reduce interest and improve serviceability
5. Get pre-approved - Home Loan pre-approval gives you confidence when house hunting

The Application Process for Defence Members

Many lenders offer a streamlined application process for ADF members, recognising your unique circumstances. The property market moves quickly, so having your documentation ready is essential:

• Recent payslips showing all allowances
• Bank statements covering at least three months
• Tax returns
• Asset and liability statements
• Proof of any additional income

Using Home Equity Effectively

If you already own property, your home equity can boost your borrowing capacity for investment properties or upgrades. Banks and lenders across Australia offer various products that leverage existing equity while maintaining manageable repayment structures.

State-Based Considerations

Remember that stamp duty and other property-related costs vary between states. These additional expenses don't increase your borrowing capacity but affect your overall budget when buying a home.

Some states offer stamp duty concessions for first-time buyers, which can free up more funds for your deposit or reduce the overall loan amount needed.

Understanding your borrowing capacity puts you in control of your property journey. As a Defence member, you have access to specialised Home Loan options that recognise your unique career and financial position.

Call one of our team or book an appointment at a time that works for you to discuss your borrowing capacity and explore the Home Loan options available specifically for Australian Defence Force members.