For lenders to determine your borrowing capacity they will perform a risk assessment to better understand your financial health. By doing this, they will determine if you are at risk of your repayments defaulting. If the likelihood is low, then your borrowing capacity will increase. There are several factors that contribute to this assessment. These being credit history, job security, and your credit card limits.
We have outlined a few ways to help you increase your borrowing capacity:
Credit Card Limits
Lenders will first and foremost look out for your credit card usage and history. Low credit card limits are seen as safe, whereas a high credit card limit could lead to financial difficulty. Depending on the number of credit cards you own, lenders will combine the total limits. As an example, if you have two credit cards, one with a $5,000 limit and the other with $10,000, a lender will write down $15,000 in debt against you. In order to increase your borrowing capacity – you may want to think about reducing any surplus cards you own and decreasing your credit card limits.
Personal loan debt reduces the amount of income you must service a home loan, in turn potentially lowering your borrowing capacity. Personal loans also often have higher interest rates. If a variable interest rate is attached to your loan, lenders may also add on a buffer to allow for future interest rate rises. When shopping for a loan, take time to consider the features of the loan product so you know if it suits your situation. Loan features can impact how much your lender will offer you, and this includes things like packaged products, offset account, and so on.
If you apply for a mortgage while you have outstanding car finance to pay, lenders will factor in the repayments as part of your outgoings when assessing your mortgage affordability. Because car finance will be a significant, regular expense, the repayments will affect how much mortgage lenders will let you borrow. Whether you are currently making car finance repayments or you are thinking about applying for car finance, there are some things you can do to minimize the impact car finance could have on your mortgage application.
- Pay your car finance repayments on time
- Wait until you’ve repaid your finance before applying for a mortgage
- Choose a cheaper car that you can easily afford
- Don’t apply for car finance just before or just after your mortgage application
Afterpay and Zippay
Banks have now applied stricter requirements on lending. Customers applying for home loans are required to disclose what they owe on their AfterPay and ZipPay accounts. This is now part of most banks’ serviceability requirements. If you use these platforms, you need to make sure your repayments are not overdue. Additionally, you need to avoid any fees and charges for late payments. Late or missed payments can affect your home loan application process.
Pointer Finance is your smart guide for everything to do with residential, self-employed, and SMSF loans. We’re experts in personal lending so you don’t have to be. We’ll keep an eye on the future while finding you competitive, flexible loan options with a speedy turnaround, so you’re not kept waiting.
Contact us today to find out more about your mortgage borrowing capacity.
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