Top 5 ways to increase your borrowing capacity
All Australian lenders are required to take your financial situation into account before offering you a loan. Your income, debt, savings and credit history are just some of the factors that will determine (a) whether you can obtain a loan and (b) how much you can borrow.
Lenders do this for two reasons. Of course, first, they are looking after their money, assessing the risk involved in lending to you. Secondly, they have a regulatory obligation to lend responsibly. They both amount to the same thing: your lender wants to get their money back, plus interest. If you can’t make the repayments on your loan, it’s a lose-lose situation.
Within these constraints, there are a few simple and smart ways to increase the amount you might be able to borrow. These aren’t ‘tricks’ to fool the lender. They’re tips to help you present yourself in a way that gives you more choice when purchasing a property.
1: Save, save, save
Lenders love to see that you can save more than you earn. They’re looking for consistent saving and spending patterns for proof that you can service a loan. Promising them that you’ll cut back on your $300-a-week takeaway food spending doesn’t mean much. Demonstrating that you’ve only been getting takeaway once a fortnight for the past 12 months is much better.
Saving can be simple (take your lunch to work, only go out one night on the weekend) or more meaningful (skip that annual trip to Bali). If a lender can see a reliable history, it can translate to a lower deposit requirement (possibly 10% instead of 20%), which in turn increases the value of properties you could purchase.
2: Reduce your debt
Did you know that credit cards and store cards are counted as debt by lenders, even if they’re all paid off?
If you have two credit cards, each with a $10,000 limit, the bank sees you as being $20,000 in debt. Pay off your cards, consolidate your debt in one place, cancel credit and store cards where you can, and pay credit debts off as quickly as possible.
3: Ensure a good credit rating
If you’re worried about past loans and repayments, it might be worth checking your credit rating before applying for a mortgage. Save potential disappointment by knowing up-front whether you’ll be seen as a risky borrower.
There are a few Australian credit reporting agencies. The Australian Government offers advice on checking your credit record free of charge. At Mortgage Broker Melbourne, we can also help you find out your credit record and offer tips on how to improve your situation.
4: Reduce your living expenses
Responsible Lending Guidelines are there to protect against borrowing more than you can afford and part of this assessment is analysis of your monthly living costs. If you can reduce spending, it is possible you could improve your borrowing capacity as a result.
To ensure you don’t overcommit with your new mortgage, certain expenditure minimums are still assumed along with an increase to some living costs, if you are buying a home after having rented previously. These include buildings insurance or body corporate fees and council rates, even property maintenance that may have previously been covered by your landlord.
If, however, you are presently spending more on discretionary items such as entertainment, travel and expensive clothing, it is possible you can reduce those expenses and put the savings toward your mortgage repayment instead, increasing the amount you could potentially borrow, whilst still remaining in a safe position.
5: Talk to us
The easiest way to maximise your borrowing capacity without plunging yourself into more debt than you can manage is to talk to a broker at Mortgage Broker Melbourne. We assess your home ownership goals, credit history and overall financial position to help you find a loan that best suits you.
By maximising the amount you can borrow, you open yourself to more properties in the market. With extra choice, you’re improving your chances of buying your dream home.
Contact Mortgage Broker Melbourne today. There’s never any cost to you, and we offer pandemic-safe meetings.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!