08 Jun How to increase your borrowing power.
Your dreams of living in a perfect home can be curtailed if you do not have sufficient funds. Lenders and banks do not grant a loan easily. Therefore, increasing your borrowing power could make a difference between buying your dream house and losing it due to improper planning.
1. Pay off Debts
Lenders look at your debts when assessing your mortgage application. The more debt you have, the less likely you will be able to borrow. Use your savings to pay off any existing debts as it will have a major impact on the success of your loan application.
An example would be that you have taken a car loan 2 years and 9 months and ago. Only three months left to pay off the loans. It will be good idea to pay of the car loan now and as lenders will still use monthly repayments on the car loan when servicing for a home loan.
2. Minimise Available Credit
Credit cards can have unfavourable impact on borrowing power. Let us says that you have more than 2 credit cards with $20,000 and you are not actually using them. These limits will actually lower you’re borrowing power. The Banks look at that as debt and they use 3% of the limit of these credit cards when accounting for debts. Good idea will be to reduce the credit cards limit and minimum you reasonably will need. This also applies to other debt like overdrafts, car loan and personal loan.
So, if you do not use your credit cards or have more limits on them, you must lower the limit or remove excess cards to improve your borrowing power.
3. Tax Returns are Important
If you have your tax returns up to date, banks will be able to evaluate your previous records and analyse your income to be steady which can help to boost your borrowing power.
4. Opt for a Lender that considers Negative gearing and rental income
Not all banks and lenders consider negative gearing for your investment property. Few banks don’t consider negative gearing at all. On the other hand, some lenders take into count 80% of the rental income that you’re expected to receive and servicing is also done at the loaded rate.
5. Look Around for Low Interest Rate
Interest rates vary from lender to lender, so look for loans with a lower interest rate or contact a mortgage broker to help you find one.
Savings on annual interest rate will leave you with a lot of money which you can use for paying the loan.
6. Choosing the Right Loan Product
Many people may not think about it but loan products offered by a bank or a lender can improve your borrowing power.
There are different features such as honeymoon period which offers low interest for the initial period of the loan (usually one year). There are many different kinds of loan and you will be assessed differently for each loan, so it is wise to choose the one that will provide you the maximum borrowing power.
7. Save a Large Deposit
Saving a large deposit will increase your borrowing power. If you only have a 5% deposit, you’ll be required to pay lender’s mortgage insurance. A deposit of 20% will put you in a very good position and lender’s mortgage insurance will also not be required. So, the more you save, the better it is.
8. Choose a lender who favours your type of income
There are lots of different types of income. You might earn income from a nine to five job, you might be a contractor, you might be a consultant, you might be a sole trader or small business, you might have a company. Choose a loan that favours your type of income example would be some of the lenders use 100% over time and other reduce it by 20%. Also if you are self employed then some lender will lend on last years (only one) financials while others require two years.
These techniques can help you boost your borrowing power but you may still face problems in other aspects of your home loan application. Josh Financial Services can help you get rid of those problems as our experts can make the process of securing a mortgage application simple and straightforward for you.