January 31, 2017
If you are looking to buy a home, one of the first things you may like to work out is how much money you can borrow.
There are seven different factors which can affect your borrowing capacity.
Knowing what these factors are and how they affect you should help you to identify what you can borrow and thus what type of property you can afford.
#1 - Income
The first factor that will affect your borrowing capacity is your income. Before a lender will give you a home loan, they will want to assess how much you can afford in mortgage repayments.
To determine exactly how much you can afford in mortgage repayments, they will look at your income as well as any outstanding debts and other commitments you have.
#2 - Expenses
The second factor is your lifestyle expenses.
When trying to establish how much you can comfortably borrow, you'll need to take a close look at your living expenses and work out what you can realistically afford in mortgage repayments while still retaining a good standard of living.
#3 - Credit history
The third factor at play is your credit history.
If you can prove you are a reliable customer who meets their financial obligations on time, you may be able to borrow a higher amount. Of course, if you have missed a few bills or credit card payments in the past, this may work against you when you are trying to obtain finance.
Before seeing a lender, it is a good idea to get a copy of your credit history and see if there are any red flags or problems you can address before you start looking for finance.
#4 - Deposit
The fourth factor is your property deposit:
The bigger your property deposit is, the easier it will be to obtain finance and potentially borrow a higher amount. Lenders like to see that you are able to save money over a period of time.
#5 - Terms
The fifth factor you have to be aware of is your home loan type, term and interest rate:
The amount of money you can borrow may depend on the interest rate and the term of your home loan. The lower the interest rate, the lower your repayments will be. A longer-term home loan will mean lower repayments, but a shorter-term loan may save you interest. You need to think carefully about what is most important to you.
#6 - Assets
What you have in the way of assets can also play a significant role in determining how much you can borrow.
Having assets like a vehicle, an investment property or shares can significantly influence a lender’s decision.
#7 - Value
Finally, once you have found the property you would like to purchase, how much a lender will lend to you will depend on what the property is worth.
The lender will find out how much a property is worth by conducting a valuation of the property. That valuation will then determine exactly how much they can and will lend to you.
Your local mortgage broker can help you work out how much you can afford to borrow and step you through the whole home loan process.