The amount of money a bank will lend you to purchase a property is based on a combination of important factors.
Your annual income, deposit, or the equity in your home all contribute to the final figure that a bank is willing to offer for a mortgage.
But by law, a lender must ensure that you have the ability to service that loan based on your lifestyle without falling into significant financial troubles.
To determine this, there are a number of lesser-known details that may impact your borrowing capacity.
1. Annual Expenses
The cost of your lifestyle is part of the equation banks use to calculate your borrowing capacity.
How much you spend will play a role in determining your chances of being approved for a mortgage. The number of dependents you have will also impact this figure. The more children, the higher your expenses will generally be.
Three to six months before applying for a home loan, many people consider reducing their living expenses where possible in order to improve their chances of securing a favourable loan.
2. Debt (including HECS HELP, Credit Cards, and BNPL Apps)
Banks consider any form of debt to be a liability, including student HECS-HELP debt, credit cards, buy now pay later apps, car loans, or any other type of unsecured debt.
The more liabilities against your name, the lower your potential ability to repay a loan in the eyes of the bank. While it won’t rule out your chances completely, it will impact your borrowing power.
3. Upfront Costs
On top of a deposit, you must also pay for stamp duty, legal fees, transfer fees, and lender’s mortgage insurance (LMI) if your deposit is less than 20%.
Your Mortgage estimates that upfront costs can be between 7%-11% of the total purchase price of your property.
It’s important to consider and save for these costs. If not, they could take a significant chunk out of your deposit and impact how much you can borrow as a result.
4. Credit History
Your credit score is an incredibly important figure when it comes to your ability to be approved for a loan.
The score essentially calculates your trustworthiness as a borrower. Lenders use this number to determine whether you’ll be approved for a loan at all, as well as how much money they will lend you and what interest rate you’ll pay. You can request a copy of your credit report by contacting companies like Equifax or Experian.
If there are any red flags, attempt to improve your credit score by making credit card and bill payments consistently on time, avoiding credit cards and payday loans and consolidating any debts you may have.
But remember, improvements won’t happen overnight.
At AssetBase, we work closely alongside mortgage brokers to ensure that we can source a property that will suit your individual financial situation.
If you don’t have a broker, we can put you in touch with one of our trusted partners.
Reach out today to find out more.
*Please note that past performance is not an indicator of future performance. AssetBase operates as a Real Estate agent licensed to source & sell property nationwide. This email does not constitute financial advice, credit advice, legal advice or tax advice. Financial advice should be sought from a qualified financial adviser, credit advice from a qualified mortgage broker, legal advice from a solicitor & tax advice from a qualified accountant.
