How to increase your borrowing power

May 29, 2017
Melinda Halloran

‘How much can I borrow?’ If you are ready to take out a home loan, this is probably the top question on your mind. To give yourself the best chance of being approved for a mortgage, there are a few things you can do to increase your borrowing power.

When a lender is assessing your application for a home loan, they are looking for two things: your savings history and evidence that you can afford the repayments on your loan. So if there’s anything you suspect could undermine your application in either of these areas, it’s best to address these before you apply for a home loan. 

Whether you want to increase your borrowing power or simply boost your chances of being approved for a home loan, try the simple tips below.  

1. Work out how much you can borrow

The first thing you need to know is how much you can currently borrow. Online calculators are a good place to start, however speaking to someone face to face will give you the best indication of what’s possible. That’s because an online calculator can only do so much, but a home loan expert can take all of your individual circumstances into consideration and make tailored recommendations.

2. Build up your savings history

When a lender is looking at your application, they want to see at least three months of savings history in your own bank account. Some borrowers will often save by giving their money to partners or parents for safekeeping, reducing any temptation to spend it. The problem with this savings strategy is that lenders rely on your personal transactions for evidence that you are a good saver. So start planning your savings strategy early. The other advantage is that more you can save, the better deposit you will have. 

3. Check your credit history

Not sure how your credit history is looking? You can request your credit report online to check if there are any black marks against your name. Once you have this, you can take steps to remedy any significant issues. If there are any issues on your history that you cannot amend, make sure you disclose these to your potential lender or mortgage broker for transparency. Companies such as Equifax can provide a single report free of charge, making this a simple way to increase your borrowing power.

4. Ditch the credit cards

Did you know that when you apply for a home loan your credit card is considered to be a personal debt? So if you have multiple credit cards or a credit card with a high limit, this will be treated in the same way as any other debts you currently have. Before you apply for your home loan, think about cancelling any credit cards you don’t use and reducing your limit.

5. Consolidate your debts  

Multiple debts can be a red flag for lenders. If you have a number of debts or personal loans, it is worthwhile consolidating them into a single loan. This makes it easier for a lender to review, reduces the fees you are paying on multiple loans and also makes life simpler for you, as you’ll only have a single repayment to manage going forward.

6. Find the loan and lender that’s right for you 

Each lender has slightly different criteria that they look for when approving a home loan application. Do your research or speak to a mortgage broker to find out which lenders are best suited to you. The other thing to think about is the length of your loan. If you want to borrow more, the compromise you may have to make is taking out a mortgage with a longer term, so that your regular repayments are lower.

Related: Five types of mortgages you may not know about

If you aren’t sure what your borrowing capacity is, it is worthwhile seeking out professional advice before applying for a home loan. This will put you in the best position when it comes time to submit your application. You can book an appointment with me to learn more about the different lenders and which ones offer mortgages that will suit your circumstances. – Trevor 

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Posted in: Home loans

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