There are many online borrowing power calculators promising various borrowing amounts, but how accurate are they?
Online calculators give you an indication of borrowing power based on standard costs of living and ongoing expenses that you feed into the calculator. After using several borrowing calculators, you might find that they all calculate figures differently which could mean variances in the final figure. This might mean the difference of setting a high standard with your desired home and having to lower your budget.
We tested 3 of the most popular online borrowing calculators and found that they differed by a staggering $59,500.
This was based on a couple earning $50,000 each before tax with auto-calculated expenses (expenses left on zero), 6% interest rate and a 30 year loan term.
Now, suppose we alter the couple’s income to $100,000 each, the difference in borrowing capacity amongst the 3 calculators increases to $155,000.
We recommend you try a few online calculators from different reliable sources and take an average as a basic guide so you don’t sell your self short of your true borrowing capacity. Alternatively, you might set an expectation too high only to find that it is out of budget when approaching a lender. The most important thing to remember is that borrowing power calculators do not take in the many factors that a comprehensive loan approval considers on application, so take this into account to avoid disappointment.
Lastly, there is nothing wrong with taking account borrowing calculator’s figure as a reasonable guide, but be sure to consider applying for pre-approval as a better means of measuring your true borrowing power.