How Much Can I Borrow For My First Home?

Lenders take a cautious approach when it comes to assessing affordability. The amount you can borrow is not just based on your income and savings but also on your existing financial and future commitments, lifestyle expenses, and even the type of property you intend to buy. In this article, we'll unpack how borrowing limits are calculated, what banks look for, and what you can do to strengthen your position as a first home buyer.

What Do Banks Look At When Deciding How Much You Can Borrow?

When applying for a home loan, banks and lenders conduct a full assessment of your financial situation to determine how much you can afford to repay on a monthly basis without financial hardship. This is known as your serviceability.

Here are the core elements lenders assess:

Income

Your income is the foundation of your borrowing power. Lenders will review your gross annual salary or wages, self-employed income (usually averaged over 2 years), secondary income such as bonuses, overtime, boarder or flatmate income and benefits, as well as rental income if you're keeping a current property as an investment. For variable income sources such as commission or overtime, lenders may only use a percentage of that amount or average it over time.

Expenses

Banks consider fixed living expenses as non-discretionary (unable to be adjusted) and discretionary expenses (able to be reduced or stopped if required). They'll want to see your regular outgoing expenses like utilities, groceries, transport and subscriptions, along with debt repayments including credit cards, car loans, student loans and Buy Now Pay Later services. They also consider KiwiSaver and investment contributions, as well as school fees or childcare costs if relevant. Banks will compare your income to your expenses to see what monthly surplus you have available to service a mortgage. An in-depth discussion with your mortgage adviser or lender will help to confirm these expenses.

Deposit Size

The size of your deposit plays a major role in how much you can borrow. The bigger your deposit, the lower the loan amount needed and the stronger your application.

In New Zealand, the standard deposit required for most buyers is 20% for an existing property, or as low as 10% (or even 5%) for eligible first home buyers using First Home Loans or purchasing a new build. For example, if you have a $100,000 deposit and want to borrow 80%, the maximum purchase price would be around $500,000.

Learn more about deposit strategies and savings options in our blog How much Deposit do I need as a First Home Buyer?

Debt-to-Income Ratio (DTI)

Banks are required by the Reserve Bank to apply a Debt-to-Income (DTI) limit, especially in higher lending situations. This is the total amount of your home loan compared to your gross annual income. Lenders use a DTI limit for owner-occupied properties of 6 times your income. So, if your combined income is $100,000, you may be limited to a loan of $600,000.

Stress Testing at Higher Interest Rates

Banks don't assess your affordability based on current interest rates. Instead, they "stress test" your loan at a higher interest rate - often around 2% higher than current interest rates - to ensure you could continue repayments if rates rise in the future. This can significantly affect how much you can borrow.

Even if you're applying for a fixed interest rate of 6%, your application might be assessed as if you're paying much more. This is one of the most common surprises for first home buyers.

How to Increase Your Borrowing Power

If your borrowing power isn't quite where it needs to be, there are ways to strengthen your application.

Reduce Debt

Paying off or consolidating credit cards, Afterpay accounts, or car loans can dramatically improve your serviceability. Even if you have a credit card with no balance, the limit is still counted as potential debt by most banks.

Learn More: 6 Tips For Getting On Top Of A Debt Mountain

Increase Income

While easier said than done, picking up overtime or securing a second source of income (such as taking in a flatmate) can help. Some banks accept boarder income up to $250–$300 per week, especially if you're currently living with flatmates.

Teaming up with a family member can be another option if appropriate. Just be sure to consider the suitability of your team and take a read of our article on Buying Property With Others: Things To Be Aware Of

Trim Expenses

Review your bank statements and see where you can make savings. Many lenders will ask for the last 3 months of transaction history and will flag high discretionary spending, multiple subscriptions, or irregular transfers.

Discussing a realistic future homeownership budget with your adviser or lender can assist in this area and ensure you have adequately factored in what your homeownership expenses will look like to avoid being financially stretched.

Use a Guarantor or Gifted Deposit

Having a family member gift you part of the deposit, or act as a guarantor, can reduce the loan amount required and improve your chances of approval. Both banks will consider this option. It is, however important that all parties obtain independent legal advice to understand their obligations.

Apply Through a First Home Loan Scheme

If you're eligible, applying through a lender that offers the First Home Loan scheme backed by Kainga Ora can allow you to borrow with as little as a 5% deposit - subject to income and regional price caps.

How Much Can You Borrow On One Income vs Two?

Single applicants often feel they are at a disadvantage - and in some ways, they are. With one income, your borrowing power will naturally be lower, and expenses like rent, utilities, and groceries don't reduce as much as income does.

That said, many lenders support single buyers through lower-deposit options and by factoring in flatmate income. If you're buying as a couple, your joint income and combined expenses will generally improve your borrowing power.

For those planning to have children or reduce hours in future, it's important to assess whether your loan is sustainable on a single income if required.

For single applicants, considering teaming up with friends or family could help you overcome the income hurdle to get into your first home.

Learn More: Buying Property With Others: Things To Be Aware Of

What Happens If You're Self-Employed?

If you're self-employed, you'll need to provide more documentation to support your income. This usually includes 2 years of financial statements, personal IRD income summaries, business bank statements, and GST returns if applicable. Some lenders may accept just one year of financials if you've switched from employment to contracting within the same industry.

A mortgage adviser can help package your application to highlight your earnings potential and stability, especially if your income varies across seasons or projects.

Can You Get Pre-Approved Before Knowing How Much You Can Borrow?

Yes. In fact, getting a mortgage pre-approval is the most reliable way to know exactly how much you can borrow.

Pre-approvals give you a conditional lending amount, usually valid for 60–90 days. This allows you to search for a home with confidence, make offers quickly, and meet finance conditions within tight deadlines.

It also means that any potential issues with your application - like undisclosed debt, high expenses, or issues with your income - can be addressed early before you fall in love with a property outside your budget.

You can learn more in our guide: 7 Steps to Get Mortgage-Ready for Your First Home

Work with a Mortgage Adviser to Maximise Borrowing Power

Banks differ significantly in how they assess applications. One bank may decline your loan due to a credit card or expense level, while another may approve it thanks to more flexible policies.

That's where working with a mortgage adviser can be invaluable. At The First Home Buyers Club, our advisers help you understand and guide you through the first home buying process. They compare lending criteria across banks, help you understand your borrowing limits, suggest ways to increase affordability, and structure your application for better success. Our service is free for most clients, and you'll get expert support from someone who understands the New Zealand property market and the first home buying process inside and out.