Mortgages and Financing

Whether you are a first home buyer or looking to buy a property for investment purpose, you should always get your finances in order before you even think of buying a property.

Your finances actually determine how much you can borrow and how much you can pay back for a new property.

Different banks and lenders have different methods of accessing your borrowing capacity and have different lending criteria and so the amount you can borrow will vary between each.

How Much You Can Borrow?

The amount you can borrow from a bank or a lender or rather your borrowing capacity depends on various factors, including: income number of applicants – combined income is deposit amount or other equity you have in a property other assets and debt type of loan the lender or the bank you choose Our brokers will quickly calculate and inform you of your maximum borrowing capacity. The following are few recommendations which can help you to improve your borrowing power.

Credit cards

Credit cards are also a part of unsecured loans and it is better to cancel them if you do not use them anymore.

Credit cards are also taken into account by banks and lenders when they calculate your borrowing capacity, regardless of whether you use them or not.

While some banks and lenders ignore your credit cards if you have paid the full outstanding amount 3 months in a row. But most banks and lenders do consider your credit cards and assume that you may use your credit cards up to the maximum available limit.

It is advisable to reduce your limit on your credit card which you still use because by reducing the limit, you can improve your borrowing capacity.

Keep financial records up to date

It is important to keep your financials up to date because in most cases, the borrowers do not keep their financials up to date and therefore fails to prove their income levels to the lenders and banks.

Filing your tax returns on time can help you secure your home loan which you are looking for.

It is also advisable to show your last 6 months payslips to the lenders or banks instead of disclosing your last 2 months payslips because at times your last 2 months payslips can reflect your poor base salary and not your high bonuses or incentives which you may have received earlier.

Select the right home loan

You need to choose the right home loan or rather the right product according to your needs because it can have a large impact on your borrowing capacity.

Home loans have various features such as interest only repayments, fixed rates, floating rates, variable rate discounts and lines of credit.

Different types of home loans have different types of assessment methods available to lenders and banks.

Type of income

Your income is the most significant factor determining the amount you can borrow or your borrowing capacity.

Casual, contract and full time employment are all different types of employment contract and they all are treated separately by the lenders and banks. Banks and lenders are very selective when calculating your borrowing capacity. As per the banks and lenders, casual employment is considered to be the most risky employment contract and thus it affects the borrowing capacity.

Salary break ups or types of income such as overtime incentives and annual bonuses are also taken into consideration by the lenders and banks.

Split liabilities with your partner

If you have an existing loan or debt with your partner jointly and you again make a sole application for a new home loan, the lenders and banks might assume that you are the only person making repayment on your old debt and this will decrease your borrowing capacity for the new home loan. The banks and lenders actually assume that your partner is not contributing or not making any repayments on the old debt and you are solely making the repayment which eventually decreases your borrowing capacity.

If you plan to buy a property under your sole name, then you can also split the expenses or liabilities with your partner. For example if you have two children as dependants, they may not be counted as your dependants if you can prove that your partner does and will continue to provide for them financially.

Living expenses

Living expenses are treated separately by the lenders and the banks when calculating borrowing capacity of an individual and this makes a big difference if the borrower has a big family.

Lenders and banks also take into account where the borrower is living in or in which area the borrower is living. For example if a borrower is living in a country area, he/she may qualify for smaller loan amount in comparison to the borrower who is living in a capital city.

Use properties as cross collateral

You may use your existing property as a cross collateral security to buy another property and this will help you to have a better borrowing capacity from the lenders and banks.

Strong savings

Savings are always considered the best method of proving to the lenders and banks that you have a strong borrowing capacity.

You can show your savings track record to the lenders and banks and have a better borrowing capacity and place yourself as a lower risk borrower unlike other borrowers who might have no savings track record

How Can Mortgage Brokers Help You In Increasing Your Borrowing Capacity?

Mortgage brokers can help you in determining your borrowing capacity, options available to you for borrowing from different lenders and banks and can explain you the advantages and disadvantages for each one.

Mortgage brokers can help you in increasing your borrowing capacity by creating a budget for you and help you in identifying your existing expenses so that you are able to cut down your unwanted expenses and generate a substantial amount of savings prior to applying for home loan.

Feel free to contact our team of experts at OH Mortgage to provide you assistance in this regard.

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