Consider your borrowing capacity

Looking to buy a home? Don't forget to consider your borrowing capacity. There are a few factors that may affecting how much you can borrow.

How much can you borrow?

Buying a home can be one of life’s biggest purchases, but usually we need to borrow money to live the great Australian dream.

Before you apply for a loan, and before you make any bids on a property that you may be interested in, you should consider your borrowing capacity and understand the factors that may affect how much a lender will give you. 

Your cash flow

Put your best foot forward when applying for a loan by knowing what money you have coming in - and going out.

Your income

When assessing your borrowing capacity, home loan lenders will look at your employment status, how long you’ve been in a job and your income. Basically - the longer you’ve been employed and the more you earn, the better your chances of securing a loan.

Your commitments

Lenders will also look at any outstanding debts, credit cards and expenses or other commitments that you may have and this could negatively impact your borrowings.

Your living expenses

Lenders will want to review your outgoing living expenses and will take into account things like rent, school and childcare fees, phone contracts and utility bills.

What lenders are looking for is evidence that you have enough surplus income (your income minus your living expenses) to meet your future loan repayments.

Your credit history

The better your credit history, the better your chances of enhancing your borrowing capacity.

A good credit score basically means you have been reliable at repaying any debts. A bad credit score generally means that you have experienced some trouble with repayments in the past.

Your local Mortgage Choice broker can help you take a look at your credit history and work with you on clearing up any black marks against your name.

Your existing assets

Your deposit
Cash remains ‘King’ when it comes to buying property, and the more money you have in the bank as savings, the easier it generally becomes to borrow.

If you already own a property, you may also be able to use equity in your home. Find out more about using the equity to buy.

If you need help saving for a deposit, consider using our ‘Planning a budget’ tool or read this article on ‘Money saving tips’.

Your assets
Your lender will want to know what you have in the way of assets before they determine how much you can borrow.

Having equity in an investment property or with a share portfolio can greatly enhance your borrowing capacity. On the other hand, large debts owing on assets like a vehicle can significantly influence a lender’s decision and it potentially hinder your borrowing capacity.

What can you afford to borrow?

Value of the property

Finally, once you’ve found a property to buy, your borrowing capacity may also be affected by the lender’s valuation of what the property is worth.

Lenders typically don’t want to provide finance against a property that they value at a price less than the sale price.

Don’t forget, if you’re borrowing with another person, their borrowing capacity would also need to be evaluated. This can sometimes boost or decrease your own borrowing capacity.

How much can you borrow for a home loan?

Want to find out more about your borrowing capacity? Talk to your local Mortgage Choice broker today.

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