Your borrowing capacity
If you currently own your home, you’ll be familiar with the process lenders use to determine your 'borrowing capacity'. It works similarly for investment mortgages, but alongside your regular income, lenders will also consider the potential rental income you’ll receive, which increases your borrowing capacity.
The rent earned by a property can make it more affordable for first time buyers to own an investment property rather than buying as owner occupiers. Speak to your Mortgage Choice broker and crunch the numbers to see if this could put you in front financially.
Check out our How much can I borrow? calculator to get an idea of your borrowing capacity.
Using equity in your existing home
If you’re already a home owner and have built up some home equity (the difference between your home's market value and the balance of your loan) it may be possible to use this equity instead of a cash deposit.
Here's how it works. Let's say your home is worth $800,000, and the balance of your mortgage is $300,000. The difference of $500,000 represents your equity. Assuming you meet other lending criteria (such as earning sufficient income), many lenders will let you use up to 80% of that equity as a deposit for the investment property.
See more about using equity to buy your investment property.
Seeking written pre-approval for a loan sets a clear limit on the price you can afford to pay, which will narrow down your property search and also show agents you’re serious about buying. Your Mortgage Choice broker can help you to apply for pre-approval and enable you to negotiate with confidence - or bid at auction - knowing you have finance in place.