By Arthur Ways, Mortgage Choice in Beenleigh
Asking the right question
I often get asked ‘how much can I borrow' by customers looking to buy property. There's a better question they should be asking. That is ‘what is the most suitable loan for me'. When your home loan application is being processed, there are many factors that will be taken into consideration when a lender decides your borrowing capacity. Some factors are less obvious than others.
Factors affecting how much you can borrow
Your borrowing capacity can be determined by factors including:
- Your income
- Existing debts (personal loans, credit cards, store cards)
- Whether you're buying with someone or on your own
- Any other liabilities you may have, such as dependents
Importance of serviceability and deposit
I frequently encounter customers who think that because they have assets they can borrow more. You could have $1 million worth of property, but if you can't show evidence that you can service that debt, it's highly unlikely that any financial institution will lend to you. Stricter lending criteria introduced following the global financial crisis means lenders closely scrutinise your ability to repay a loan.
As a broker sourcing a loan for you, I take care to ensure that you can comfortably afford your loan repayments.
The amount a lender will loan you can vary, but one element is key – regardless of whether you're a first home buyer or a subsequent buyer, you will need a healthy deposit and to show evidence that you can comfortably service the loan.
These days, a typical loan deposit is a minimum of 5% plus costs (such as solicitor's fees, bank fees and Government fees). If you're refinancing an existing loan, you can generally borrow 90% plus costs. In selected circumstances, you may be able to borrow up to 95% of the property value plus costs.
The next step is to organise your paperwork and gather evidence of income (payslips, group certificates, tax returns), your most recent bank statements and evidence of other income (like shares or rent) and make an appointment with your local Mortgage Choice broker who can give you the bigger picture.