How To Increase Your Borrowing Capacity
Maximising the amount a lender will hand over to you isn’t about trying to take on unmanageable levels of debt. It’s a matter of taking a few simple but smart steps that could mean the difference between toiling in that ‘fixer-upper’ or owning your dream home.
1. Shop around for lenders
Different lenders define income in so many different ways that it pays to use a mortgage broker who knows their way around what’s included and what’s not. One lender may allow share dividends as income, while another lender may not.
2. Shop around for the right mortgage
A good mortgage broker will help you choose the most appropriate mortgage. Even with one lender, your borrowing capacity can vary due to the loan type that you choose. If you add features such as a line of credit this can reduce the amount you can borrow.
3. Update your financial records
Try to have your PAYG income tax return as up-to-date as possible. This gives a better historical view of your income than just the two most recent payslips.
4. Check your credit rating
Check your credit rating before applying for a mortgage. Due to recent changes, your rating may not be as healthy as you thought. The national credit reporting agencies are Equifax, Experian, and illion. Find out more here.
5. Roll your debts into your mortgage
Unsecured debts such as personal loans and credit cards have expensive monthly repayments, and these monthly repayments cut into the amount you can repay on a mortgage. Be mindful that just because your debts are now on your mortgage you could end up paying more in interest over the loan term if you only repay the minimum amount.
6. Reduce debt and credit limits
If you have unused credit cards with limits that are more than you need, then cancel those cards. Also, cancel any other cards – such as department store cards – that give you credit. Every $1000 on a credit limit – even if not spent – detracts from the amount you can borrow.
7. Investigate family pledges
Guarantor or family pledges may let your parents or family take out a second mortgage on a percentage of their own property to guarantee repayment to the bank if you fall behind.
8. Consider shared equity
Some lenders will give you a larger mortgage in return for a certain share of the profits when you sell. If you don’t make a profit, then the lender does not take a share.
9. Take a long loan
While 25-year mortgages have been the norm, that’s changing to 30 years. A longer loan cuts your repayments, but increases the total interest you will pay over the life of the loan.
10. Save more of the deposit
Lenders look for consistent saving records, preferably for more than six months. Saving more can be as simple – or as hard – as doing without that extra coffee, or taking your lunch to work each day. It all adds up and reduces the amount you need to borrow.
If you want help exploring any of these options or have any questions then contact us today and we will be happy to help.