If you’ve ever applied for a loan, you’ll know that the amount you’re capable of borrowing isn’t set in stone. It is entirely possible to increase your borrowing capacity for a home loan using a few tips and tricks so your finances look healthier to lenders.
When you apply for a loan, lenders will assess your ability to meet your loan expenses. To do so, they will review your income, financial history and expenses. Just a few small optimisations could make a significant difference to your borrowing capacity.
Discover how to increase your borrowing capacity with these simple tips so you can leverage the power of the property market and invest more quickly.
Save a large deposit
It sounds obvious, but having as large a deposit as possible when you apply for a loan can help enormously. The lower your deposit-to-loan ratio, the riskier you will look to lenders. When applying for a loan, it’s important to weigh up your options. Decide whether it may be better waiting a few weeks or months until you have saved a larger deposit.
Show a record of consistent saving
If you can show that you’re an expert saver over a long period of time, this can increase your borrowing power. You may earn a healthy income, but if you’re spending the majority of it every month, you’ll look risky to lenders.
Cut back on frivolous spending
Likewise, if you can cut back on spending at least 3-6 months before you buy, this can show you’re making responsible financial decisions. It will also help you get into the habit of budgeting in order to meet your loan repayments. Remember, even if you are buying an investment property, you’ll need to cover the cost of rates, property expenses and any strata fees, and if your home is negatively geared these expenses may not all be covered.
Reduce available credit
Lenders will assess your financial position based on how much available credit you have. This applies even if you don’t use that credit. For instance, if you have a credit card limit of $10,000 but you have only used $1,000 on that card, your borrowing capacity will still be calculated on the basis of the whole $10,000. Therefore, you should look to get rid of credit cards you’re not using. If not, simply reducing your credit card limits can increase your borrowing power.
Check your credit history
Before you apply for a loan, it’s worthwhile checking your credit history to ensure nothing will hinder you when you’re ready to buy. Apply for a credit check and fix any mistakes within your credit report so your finances are in the best possible health and you can increase your borrowing power.
Pay down other debts
Having a multitude of debts from different lenders doesn’t give lenders the impression that you have your financial matters in hand. Not to mention, you may be paying multiple sets of bank fees and it may be difficult to keep track of debt. To remedy this and maximise your borrowing power, consolidate your debts into one. Pay down your debt as much as possible before applying for a loan. If you can’t, ensure that you’re making regular payments towards the debt and not adding to it.
Property investment is one of the easiest and, arguably, often one of the safest ways to invest your money. That said, your borrowing power can be significantly hindered if you’re not in a strong financial position when it comes time to apply for a loan. Knowledge is power and it helps to discover all that you can about property investment. To learn more, explore property investment blogs for expert advice.
Or, if you’re ready to buy an investment property, we can help you maximise your borrowing capacity. We’ll provide you with a range of Sydney properties that meet your budget and needs.
If you already have an existing property and you need tenants, we are also experienced property managers. We can help you find the right tenants. Contact us today for a no-obligation chat.