What influences borrowing power?
Determining a client’s borrowing power will ultimately set the foundation for their next big property move. Many are mistaken to believe that a large deposit and multiple assets automatically mean there will be no hurdles when it comes to loan approval. There are two parts that a lender takes into consideration when qualifying a client for a loan. Firstly, an upfront deposit and loan setup expenses are considered. Secondly, can the client afford the loan’s monthly repayments? This second part is where borrowing power comes into play.
Factors that can majorly influence borrowing power include:
- Income - including work, rent from investments and returns on shares
- Number of applicants and dependants - as this helps determine living expenses
- Credit card limits - are considered regardless of the amount of debt currently owing
- Existing loans - including personal, car, business and other property loans
- Other regular expenses - including HECS or HELP debt
- Assets you can offer as security against the loan - such as existing property holdings
Each application does vary depending on the overall borrowing situation and the lender the loan application is being submitted through. For example a single income borrower on an annual salary of $50,000 with a credit card of $3,000 total limit, may be able to borrow $350,000 with one lender but only $300,000 with another. Working with a mortgage broker allows access to multiple lenders and more options to explore borrowing power. A broker will know how particular lenders will calculate borrowing power and which lender will be more suited for a certain situation.
As an overall rule, it's important to save as much as possible for a deposit, try to consolidate any debt and look to smooth over bad credit reports before applying.