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Planning to buy a home? That’s great. Congratulations for taking the first step towards fulfilling the great Australian dream. But are you aware how much the banks are willing to lend to you?

 

 
Knowing how much you can borrow at the outset helps you set realistic expectations of what you can afford and what not. Your borrowing capacity is calculated by taking into account your income and various expenses. However, it is not as simple a calculation as it seems. Lenders are mandated by law to lend responsibly, and in view of the increasing household debt, it is not surprising that your mortgage application is heavily scrutinised, with something as small as not paying your phone bill on time, lowering your borrowing capacity.

Thus, it makes good sense for every prospective home buyer to take stock of their finances before they begin the hunt for their dream property. You can start by using this borrowing capacity calculator to know how much you can borrow based on your current expenses.

“Most home buyers can afford to service their mortgage but don’t have enough funds for a 20 percent deposit. While regular savings and taking advantage of FHOG can help you build a decent deposit, there are a few other things such as maintaining a clean credit history that make you a better borrower in the eyes of lenders, thereby increasing the chances of your home loan application being approved,” says Linda, a mortgage broker.

As mentioned by Linda, today, we share with you simple yet effective tips that will boost your borrowing capacity, helping you join the property bandwagon faster:


Reduce available credit
– Using too many credit cards could bring down your borrowing capacity significantly. Even if you don’t use all your credit cards, lenders see it as potential debt that you may incur in the future.
Thus, if you have three credit cards with a credit limit of $10,000 on each card, it is a potential debt of $30,000 you could incur in the future. We suggest you give up on the extra credit cards – it will not only purge the desire to spend more than you can afford to but also save you the annual fees.

Another great idea is to roll all your debt into a single loan by refinancing to a lower interest rate that could potentially save you thousands of dollars.


Make regular savings
– Start saving regularly to prepare yourself for a rainy day while also building lenders’ confidence in your ability to manage finances well. Most lenders ask for proof of regular savings for at least three months before approving your mortgage application. In case you are unable to save due to monthly rental payments, our brokers know of lenders who will accept solid rental history in lieu of genuine savings. Read more.


Keep your living expenses under control
– Lenders consider all your recurring expenses while calculating your borrowing capacity. Keep note of all the expenses – including the school fee for your children and the gym membership – to trail your expenses and cut down unnecessary ones, such as the club membership that you do not use, to increase your borrowing capacity.

Note that you must list down all your expenses and be completely honest in your mortgage application. Any information that you withhold can derail your mortgage application if found out by the lender.


Maintain a clean credit history
– A clean credit history helps you in more ways than one. With a high credit score, not only are more lenders willing to lend to you but you will also find yourself in a better position to negotiate a lower interest rate.

Remember, a small default on your credit file could upset your dream of buying a property. Before you apply for a home loan, pull out your credit file online, for free, and go through it thoroughly. If you find any incorrect information, dispute it immediately to have it removed from your file.

Read these tips to maintain a clean credit history.


Be organised
– It is important to keep financial records such as tax slips, income and investment proofs, etc. handy to support your home loan application. For certain professionals, overtime and regular bonus payments can help them qualify for a home loan. In addition, a meticulously prepared mortgage application with complete paperwork will also expedite the approval process.


Take help from an expert
– Whether you are a first home buyer or a seasoned investor, a mortgage broker can assess your overall financial situation better, helping you understand how much you can borrow and guide you towards the right mortgage product and lender.

Did you know that you are assessed differently for different types of home loans? Also, different lenders have different criteria for assessing your application – while one lender may accept regular bonus payments as part of your income, several others will not. A mortgage broker is an industry expert who is privy to such information, and will happily pass it on to you, for your benefit.


Mortgage brokers at HashChing handhold you throughout the mortgage process, from suggesting home loan deals to preparing and lodging the paperwork, until your application is approved. Get in touch by filling in the form below to have your home loan queries answered online.

 

By Vidhu Bajaj
HashChing Content Writer

 

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HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.