You can increase your borrowing capacity by following some basic tips. However first, it is important to understand the lending criteria of a lender. You can use the following techniques to improve your borrowing capacity:
Reduce the Value of Available Credit
This is a key rule you have to follow if you wish to get a bigger loan. There are a number of individuals who keep credit cards for day to day transactions, but this isn’t a good option if you are applying for a home loan.
For example, if you have four credit cards and you only use them in case of emergency. The maximum limit of each card is $10,000. Despite the fact that you do not use these cards on a regular basis, the limit will ultimately affect your borrowing capacity.
Therefore, if you can let go of one or two credit cards or reduce the overall limit, it will allow you to borrow more.
Claim All Your Income
There are a lot of people who do not claim all of their income in order to avoid tax. But if you are planning to apply for a loan, it will adversely affect your borrowing limit. This is because the banks also look at your tax returns in addition to your payslips. Tax returns provide a good understanding of overall earnings. If you have higher earnings, it increases the chances of taking out a bigger loan.
Update Your Tax Returns
Another tip is to regularly update your tax return as it allows the bank to assess your creditworthiness on the basis of your history. If the returns show a steady stream of income, it improves your credit capacity.
Split Debt or Expenses with Your Spouse
If you plan to buy a home as a couple, but the loan is going to be in your name, you can share the debt responsibility with your spouse or partner. It will allow you to get a bigger loan than you would otherwise be eligible for because it improves your credibility in the eyes of lenders.
Select a Bank that Considers Your Rental Income while Assessing Loan Application
There are some banks that do not consider rental income while assessing your ability to pay back the loan. However, some banks consider between 3% and 80% of the purchase price of a property as your rental income. The more rental income they take into account, the higher your chances will be to increase your borrowing capacity.
Analyse the Market to Find a Low-Interest Rate Loan Package
Different banks offer different rates of interest on a home loan. Therefore, it is very important to find the most suitable package that is in line with your financial goals. You should go to a mortgage broker rather than search the market yourself in order to find a reasonable package with low rates. Brokers have years of experience in the market. We also know about the different interest rates available, to help you find the best deal.
Always Find the Right Loan Package
Each loan package contains unique features. For example, the loan for the honeymoon period has a lower interest rate compared to other loans. With different loan packages, lenders will evaluate your application differently. Therefore, it is wise to choose the package that improves your borrowing capacity.
Use Your Properties as Collateral
If you own other properties in addition to the new investment property, you can use them as collateral for your loan. Lenders always look at it positively as it enables them to use that property as a security against your loan. It increases your ability to service the debt in the eyes of a bank.
Save a Large Deposit
In addition to all these techniques, it is very important to start saving for a home loan in advance. If your deposit amount is 5% of the property price, you will have to bear an extra cost – lender’s mortgage insurance.
Chat to our team today about setting up your homeloan, call us on 1300 088 065 or email Nathan at [email protected]