When you want to borrow money to purchase property, lenders across Australia take your financial situation into account. As well as looking after their money (no point lending to someone who can’t repay the loan), lenders have a regulatory obligation to lend responsibly. This responsibility is designed to protect people who overestimate how much they can afford to borrow.
Your savings, debt, income and credit history are taken into account when lenders are deciding whether to lend you money, and – if so – how much.
For your own protection, it’s important to be up-front about your finances when dealing with lenders. All the same, maximising your loan amount improves your chances when competing for your next property purchase. Here are some ways to ensure you’re maximising your borrowing capacity.
Reduce your debt
Paying down any existing debts improves your credit history. If you’re not making payments on your car loan, HECS debt or credit cards, the bank will see that you have more money available to service a home loan.
And speaking of credit cards, many people don’t realise that lenders count them as debt. Even if your card is paid off, your limit is seen as a liability by lenders. So if you have a card with a $10,000 limit, the lender sees a $10,000 debt. Get rid of unnecessary credit and store cards.
Understand your credit rating
If you’ve been in debt in the past, it’s worth understanding what your official credit rating is. Your lender will look, so you might as well know what they’re going to find.
The Australian Government offers instructions on checking your credit report. All of our brokers at Mortgage Broker Group can also help with this at no cost. And if your credit report isn’t all rosy, we can help you with ways to improve your situation.
Get the best loan for your circumstances
Longer loans mean smaller regular payments on the same loan amount. Of course, you’ll end up paying more in interest over a 30-year loan than you would for a 25-year loan, but if it means having more cash on hand to pay your mortgage, it might be worth it.
Also remember that basic loans typically come with lower interest rates than fully-featured loans. Mortgage Broker Group can help you work out whether you’d be better off with a linked credit card, offset facility and redraw option, or whether a no-frills loan is a better choice.
SAVE!
Can you save? Lenders want proof that you can save more than you earn. A sudden deposit of $50,000 from the Bank of Mum and Dad is all fine, but the bank won’t count it as regular savings. Consistent savings over a period of time is far more compelling than promising to cut back on café breakfasts.
Small savings add up. Make your own coffee before heading off to work. Take your lunch with you too. The more you can show a disciplined savings history, the more favourably a lender will view your loan application.
Being seen as a reliable borrower can also mean it’s possible to negotiate a lower deposit requirement. Needing a 10% deposit on a property, rather than 20%, will mean you then have more to spend on repayments (and the occasional café breakfast too!).
Talk to an expert
Our brokers can explain the different options available to increase your borrowing capacity whilst still keeping it within safe levels. At no cost to you (and no obligation either) Mortgage Broker Group brokers will assess your home ownership goals, credit and savings history and overall financial position to help you find a loan that best suits you.
Having more money increases your property purchase options. Increasing borrowing capacity increases your chances of buying your dream home.