How Much Can I Borrow? Understanding Bank Criteria for First Home Loans

Buying your first home is one of the biggest milestones in life – but before you start browsing property listings, the big question is: how much can I actually borrow?

Banks and lenders in New Zealand look at more than just your income. They use a range of criteria to assess whether you can afford a mortgage, how much they’re willing to lend, and under what conditions.

In this article, we’ll break down the key factors that affect your borrowing power and give you some tips to get home loan ready.

1. Income and Employment Stability

Your income is the foundation of your borrowing capacity. Lenders want to see that you have stable and consistent earnings to make regular mortgage repayments.

Salary/Wages – Most banks require your latest 3 payslips.
Self-Employed – You’ll need 2 years of financial statements, though some lenders may accept 1 year with strong growth, and some can even allow you with just 6-months financials
Other Income – Things like bonuses, rental income, and boarder income may be included, though usually at a reduced percentage.

Tip: If you’re planning to buy soon, avoid changing jobs or industries right before applying, as banks prefer to see stability.

2. Existing Debt and Expenses

Even if you earn well, existing financial commitments reduce how much you can borrow.

Personal Loans & Credit Cards – Banks take into account both your current balances and your credit limits (yes, even if your card is at $0).
Car Loans, Buy-Now-Pay-Later, Overdrafts – These all reduce borrowing capacity.
Living Expenses – Banks estimate a minimum level of household spending based on your family size and location, but they’ll also look closely at your actual bank statements.

Tip: Paying down high-interest debt and reducing unused credit limits can significantly improve how much a bank will lend you.

3. Deposit Size

Your deposit plays a big role in both your loan approval and the amount you can borrow.

20% Deposit – Standard requirement for most home loans that you intend to buy as your owner occupied house.
5–20% Deposit – Possible under certain schemes, such as Kāinga Ora’s First Home Loan, or Shared Ownership with YouOWN or special bank programmes for first home buyers.
5–20% Deposit – Possible with most banks, as a low equity lending option.
KiwiSaver & Grants – Many first home buyers use KiwiSaver withdrawals and the First Home Grant to boost their deposit.

The bigger your deposit, the less risk for the bank – which often means more borrowing power and better interest rates.

4. Debt-to-Income Ratio (DTI)

RBNZ also states a debt-to-income ratio, which limits lending to a certain multiple of your household income. For example, if your household income is $100,000, max cap applicable for owner woccupied lending at 6x income ($600,000) and investment cap would be 7x income.

This helps ensure borrowers aren’t overstretched, particularly in high-priced housing markets.

5. Credit History

Your credit record shows lenders how you’ve handled debt in the past. Missed payments, defaults, or unarranged overdrafts can raise red flags and reduce your borrowing options.

Tip: You can check your credit report for free through Centrix or Illion before applying.

6. Bank Test Rates

Even though advertised rates may be 4-5%, banks don’t calculate borrowing at those numbers. Instead, they use a higher “test rate” (around 6-7%) to ensure you could still afford repayments if rates rise in the future.

This means your borrowing power might be lower than you expect, even if you feel comfortable with repayments at current rates.

7. Government & Lender Support for First Home Buyers

If you’re a first home buyer, you may qualify for extra support:

Kāinga Ora First Home Loan – As little as 5–10% deposit with participating lenders.
Special Bank Offers – Some banks provide cashback or discounted interest rates for first home buyers.
Special Construction Lending Options – Some banks provide an additional discount on construction lending options.

Bringing It All Together

So, how much can you borrow? The answer depends on your income, debts, deposit, and spending habits. Two people earning the same income can end up with very different borrowing capacities depending on their financial situation.

That’s where working with a mortgage broker in New Zealand makes a difference. At Mortgage Sense, we compare options across multiple banks and lenders to maximise your borrowing power and find the best structure for your home loan.