6 details that can affect your borrowing power
Ever felt like you were at the whim of the economy when it came to getting a home loan? Like nothing you do will really impact how much you can borrow? We’re here to help you out of that rut.
So what exactly affects your borrowing power and how can you increase it? Let’s take a closer look at six factors:
When you approach a lender for a home loan, they will first want to know how much you can realistically afford in mortgage repayments. To do this, your income and commitments will be assessed. If you’re buying a property with a partner, for example, you might have more borrowing power because of combined repayment capacity.
- Credit history
Another important factor will be your credit history. Only when lenders are satisfied that you are reliable in paying any financial obligations on time will they allow you to borrow a higher amount of money.
Tied in with this are your lifestyle and spending habits. ASIC indicates the average household spends nearly $70,000 a year on living costs alone, so working out a solid budget with your current bank accounts is essential.
- Loan type
Depending on the type of loan you’re applying for, the amount you can borrow will vary. In general, long-term home loans with lower interest rates translate to lower repayments.
Besides getting finance advice from a professional, it helps to know that the size of your deposit plays a part in your borrowing power. The more savings you have as down payment, the easier it will be to improve your borrowing capacity.
Finally, assets such as cars, boats or other property can have a significant, positive impact on your borrowing power as they offer security against the loan.
Increase your power
An AMP.NATSEM report has shown that the average household debt in Australia has quadrupled to $245,000 over the last two decades. Those are some serious changes in the financial situation, so if you want to ensure your lending criteria is as favourable as possible, consider the following tips:
- Keep personal and car loans to a minimum.
- Live within your means; don’t go spending big on income you don’t have.
- When applying for a home loan, list as many assets as you can. Include all possessions, investments and savings you have and their insured value.
- Stay on top of your credit history; check your report and address any potential errors.
If you’re ready to take matters in your own hands, get in touch with our home loan experts today for a chat about how we can help you.