Thinking about buying a property?
Buying a property and taking on a mortgage is one of those ‘big life’ moments, but how people progress from a vague plan to property owner varies wildly.
For many, this is a process that can take months or even years. For others it’s done and dusted in mere weeks.
Even before you get an eye for what or where you might like to buy, you should really have a good handle on what your borrowing capacity is.
What is borrowing capacity?
This the amount a bank or lender is willing to loan you. Pretty simple, right?
But the bit that makes us all come a bit unstuck is in how this is assessed.
How is borrowing capacity calculated?
Every lender will have their own assessment rate which is based on their appetite for risk.
This is why your borrowing power will potentially differ from one lender to another.
How it’s assessed
To assess your borrowing power we need you to provide the following information:
- Current income streams i.e. PAYG and self-employed income (most recent payslips or financial statements for self-employed applicants).
- Number of dependants within the household, marital status (i.e. married, single).
- Current monthly general living expenses (e.g. utilities, groceries, motor vehicle, insurances, school and day-care expenses).
- Any existing loans or credit card facilities held and the balance/limit together with minimum monthly repayment amount required.
Once we have these details, we can assess loan affordability based on the bank’s assessment rate, which is calculated in our lending system.
For most scenarios we can provide a result in minutes in an initial appointment.
The exception to this is if you’re self-employed. This can be more complicated, especially if there are several entities involved. It may take a few days for us to let you know the result.
The job of the lender
The job of the lender is to understand what you’re wanting to achieve, based on the price range you are looking at. They will then assess whether you can realistically achieve that in your current circumstances.
Their job is not to just offer you the maximum loan amount possible.
Say you were looking to buy a property in the $650k - $750k bracket. The lender will use the information supplied and the result from the bank’s lending assessment to see if it’s within your reach.
If it is, the lender can give you a pre-approval up to a certain amount. In this case $750K.
When to speak to a lender
If you know you’re getting serious about taking on a mortgage it’s a good idea to talk a lender. We can arrange loan pre-approval so you can talk and negotiate on properties with confidence and speed.
Not sure you’re ready
If you’re not quite ready to talk face-to-face, a quick and simple way to get an idea of how much you can borrow is by using a home loan borrowing calculator.
How to improve your chances of getting a loan
If you’re wanting to buy, but still need to save a bit more money, there are a few things you can do to put yourself in the best position for when you're ready to proceed.
- Minimise living expenses (within reason)
- Keep good account conduct (e.g. making agreed repayments and demonstrating savings goals)
- Pay down unsecured debt
- Reduce credit card limits if not required
- Limit enquiries on credit reports
- Display good savings patterns
Understanding your borrowing power helps you narrow your focus when it comes time to looking for a property to buy. It’s also vital in making sure your home loan doesn’t put you under financial strain.
ANY ADVICE PROVIDED IN THIS ARTICLE IS OF A GENERAL NATURE ONLY AND DOES NOT TAKE INTO ACCOUNT YOUR PERSONAL NEEDS, OBJECTIVES AND FINANCIAL CIRCUMSTANCES. YOU SHOULD CONSIDER WHETHER IT IS APPROPRIATE FOR YOUR SITUATION. PLEASE READ THE APPLICABLE PRODUCT DISCLOSURE STATEMENT(S) ON OUR WEBSITE BEFORE ACQUIRING ANY PRODUCT.
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