How much can I borrow for an investment property?

How much are lenders willing to lend for an investment property?

Lenders tend to consider investor loans a slightly higher risk than a standard home loan, so they have different interest rates and terms. 

Investor home loans are often capped at 90% LVR, meaning you will need a 10% deposit. The Loan-to-Value Ratio (LVR), a calculation lenders use when assessing your loan application, is calculated by dividing the amount of your home loan by the purchase price or appraised value of the property. The lower the LVR, the lower the risk to the lender. LVR is closely related to the size of your deposit, so a loan with an LVR of 80% will typically require a deposit of 20%.

Tip: Ultimately, the more you can save for the deposit the better, so with a 20% deposit you avoid paying Lenders Mortgage Insurance (LMI).

Now let’s understand what factors lenders look at when they consider your application.

What do lenders consider when determining investment property borrowing power?

When it comes to determining your borrowing power lenders take a number of factors into account before they approve an investor home loan, specifically your: 

• After-tax monthly income.
• Living expenses or outgoings.
• Existing debt commitments.
• New loan commitments (the home loan amount you are applying for).
• The size of the deposit you have saved.
  

They need all this information to calculate if you can afford to pay - or service, your home loan repayments. Your serviceability is a lender’s assessment of your ability to repay a mortgage or home loan, a step designed to ensure the loan is suitable for you. This assessment typically occurs just before a lender runs a credit check on your loan application. Lenders have their own serviceability criteria so you may qualify for a home loan of varying amounts, depending on which lender assesses your application.

There may be a few different scenarios that could be possible and this can be better uncovered through a conversation with a Loan Consultant from our team.

You can use our online calculator to work out how much you could borrow. This will give you an estimate of what type of property you can afford, how much your monthly repayments will be, and the term - or length - of the loan based on the interest rate. Our handy home deposit calculator can help you work out how much deposit you need, with an estimate of all the upfront costs associated with buying an investment property.

You may also want to know how you can improve your borrowing power.

How can I increase my borrowing capacity or power?

If you want to make sure you maximise your borrowing capacity here are some ways you can do this:

• Minimise how much debt you have, particularly unsecured debt like credit cards and personal loans.
• Make sure your financial affairs are in order, with no outstanding payments or tax debt.
• Find out your credit score or rating, which will give you a good idea how lenders will view you from a risk perspective.
• Save for the largest deposit you can, with a consistent record of savings. 
• Minimise your outgoings or expenses associated with your lifestyle.
  

If you have equity in your current property, accessing this can help lower the upfront cash commitment that comes with purchasing an investment property. 

Using equity to buy an investment property

If you've had your home loan for some time you are likely to have built up a reasonable amount of home equity through your regular mortgage repayments. This can be used as the deposit for your investment property purchase. 

The equity in your current home is the difference between the current market value of your property and the remaining amount you owe on your home loan. Lenders will only allow you to access a portion or percentage of your total equity, which is part of their risk management process. A lender may allow you to access more if you are willing to pay Lenders Mortgage Insurance (LMI).

If you have already saved for a deposit and are comfortable with your ability to service a home loan you can start the application process. 

3 reasons you should consider Yard for your investor home loan 

Wondering why you should consider us for your investor loan? Here are three reasons why we think we stand out:

1. Our application process is hassle-free, online and free
2. You get a dedicated loan consultant who works with you from start of application through to settlement
3. We can provide a pre-approval that’s valid for 90 days, which gives you confidence to go to bid at an auction
   

Other features of our online home loans include unlimited additional repayments and free redraws as well as an optional 100% offset facility. You can also check what our current rates are for investors, including any specials we have running.

Have any questions about qualifying for an investor loan, or anything else? We’re here to help, and our local team are available to chat at a time that suits your schedule.