Published at: 6/21/2016 3:29:32 PM
Your ‘borrowing capacity’ simply means how much a bank will lend you to buy a home. You may have checked out some of the borrowing capacity calculators available online but these should be seen as a guide only. The best way to know exactly how much you can borrow is by speaking with your ME Bank Mobile Bank Manager.
Without a firm idea of your borrowing limit, it’s easy to fall into the trap of committing to a property you cannot afford – a potential disaster if you’re buying at auction.
So lets’ take a look at the key factors that shape borrowing capacity, and what you can do to increase yours.
It’s not all about your deposit
Let’s be clear on this one. The size of your deposit matters but it’s not the only factor that determines your borrowing limit. Nor does it hinge entirely on your income.
In fact, a range of issues work together to shape your borrowing power. Lenders will generally look at your monthly living expenses, the limit on your credit card (not just how much you’ve racked up in card debt), and your credit history, which shows how well you’ve managed debt in the past.
Boost your borrowing power
Happily, there’s a lot you can do to boost your borrowing capacity before you apply for a home loan.
First, look closely at your household expenses
Lenders look very closely at your actual living costs – not just industry benchmarks. So be prepared to show you have household costs under control. Consider areas where you could cut back to free up income. No-brainers include cancelling unused gym memberships or that nice-but-not-necessary cable TV subscription.
Next, think about culling back your credit card limit
As we mentioned, lenders place more importance on the limit of your credit card rather than the outstanding balance. That’s because the card limit is what you could potentially find yourself owing. Think about contacting your card issuer to have the card limit reduced.
Aim to pay down other debts
If there’s money owing on, say, a car loan or personal loan, paying down these balances can boost your borrowing limit. Lenders like to know you can comfortably handle all your financial commitments, and if you have a clean slate in terms of other debts, your loan application is more likely to get a thumbs up.
Talk to your ME Mobile Banker for a straight-up answer on how much you can borrow to fund your first home.