How to increase your borrowing capacity
Maximising the amount that a lender will loan to you isn’t about taking on unmanageable debt. Rather, it is a matter of taking smart steps that could mean the difference between purchasing a property in need of renovations or owning your dream home!
Shop around for lenders
Not all banks are created equal – they all have differently defined lending policies! Different lenders also assess different income in so many ways that it pays to use an experienced Mortgage Broker. For example, one lender may allow 100% of rental income whilst another may not.
Shop around for the right deal
Your trusted Mortgage Broker will be able to help you choose the most appropriate mortgage for your circumstances. Your borrowing capacity can vary due to the loan type that you choose. If you add features like a line of credit, or a credit card this can dramatically reduce the amount you can borrow.
Updated financial records
Try to have your PAYG or self-employed income tax returns as up to date as possible. This gives a historical view of your income and often allows the applicant to submit a full documentation home loan application, which is preferable. If you don’t have all your financial records up to date then low documentation loans are available, however they often come with much higher interest rates as there is a greater risk to the lender.
Check your credit rating
Check your credit rating before applying for a mortgage, it may not be as healthy as you thought.
Consolidate your existing debts into your mortgage
Unsecured debts such as personal loans and credit cards have expensive monthly repayments, and the repayments can cut in to the amount you can borrow on a mortgage. One strategy to boost your borrowing capacity is to consolidate these debts into your existing mortgage.
Reduce debt and credit limits
If you have unused store or credit cards, then cancel those cards. The amount of the credit limit detracts from the amount you can borrow. Lenders recognise the credit limit, not the balance.
Take a longer loan term
While 30 year mortgages have been the normality, that’s changing to 40 years in some cases. A longer loan term reduces the repayments, but increases the total interest you will pay over the life of the loan.
Save a bigger deposit
Lenders look for consistent saving records, preferably for more than six months. Saving more can be an advantage. Going without that extra coffee, or taking your lunch to work each day. It all adds up and reduces the amount that you will need to borrow!
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.