Your borrowing capacity is the amount of money which you can borrow to purchase a home based on your current financial state. This will give you a clear idea on what you can afford when considering new home options.
When calculating your borrowing capacity, the bank will consider your current debts, living expenses, credit card limits, employment and income situation etc. Each bank has their own lending guidelines which serve to prevent people from borrowing more than they can afford to repay.
If you're looking for ways to improve and maximise your borrowing power, then here's some tips that may help you!
1. Reduce your credit card limits...
You credit card limit can affect your borrowing power. Why? Because lenders will calculate your borrowing capacity based on how much you will need to repay if you were to max out your credit cards.
For example, if you have two credit cards with limits of $10,000 each, the lender will consider a potential loan of $20,000 which can have a big impact on your borrowing capacity.
Lenders want to make sure that if you max out your credit cards, you can still repay your home loan without being under financial pressure. So if you're able, consider reducing your credit card limit.
2. Include additional incomes...
Many lenders will accept additional incomes so when calculating your borrowing capacity your should include all forms of additional income that you receive.
Additional incomes may include dividends, second jobs, child maintenance payments, Government benefits, bonuses, commissions, annuities and rental income.
If you're unsure if your income will be accepted, contact your lender or Mortgage Broker to find out.
3. Connect with a Mortgage Broker...
Many home buyers will go directly to their bank to calculate their borrowing capacity however, your borrowing capacity will almost always vary from lender to lender.
A Mortgage Broker can connect you to multiple lenders by entering your details into lending software that will show results from a wide range of lenders. Your Mortgage Broker will then be able to suggest a lender and loan product that may best suit your needs.
Your Mortgage Broker will work hard to put you in the best position for success. This will save you the need to go to different lenders and make a large number of enquires that could have a negative effect on your credit report.
Many lenders will also require an 20% deposit towards your home loan. Our Mortgage Brokers have extensive knowledge in the finance market and specialise in low deposit home options.
4. Have a good credit history...
When looking to buy a home, having a good credit report is extremely important. Why? Because when banks offer you a home loan, they're essentially betting that you'll be able to pay it back.
If your credit report shows late payments or defaults, they may decline your home loan application. Having a good credit history with bills paid on time will show the lender that you're a responsible borrower and can increase your borrowing capacity and chance of approval considerably.
5. Consider purchasing with someone else...
If your borrowing capacity is less than you require and you're struggling to meet the lenders income requirements, then you may want to consider the idea of a joint purchase with someone else.
Joint purchases are a popular way for many to get into the property market. By teaming up with a partner, family member or friend you may be able to add additional income and increase your borrowing capacity.
Want to know your borrowing capacity?
Our Mortgage Brokers have access to up to 30 lenders and can show you how to become a home owner with less savings. Our service is free and we can maximise your chance of getting into your own home.
Get pre-qualified and find out your borrowing capacity in a few simple steps!