How much can I borrow? – Your Borrowing Power
How much can I borrow – The importance of savings.
What Factors will your potential lender will be looking for include the level of income you regularly earn:
- What has been your ability to save as a percentage of your income?
- Has your income been rising or dropping?
- A further factor not to be forgotten is your ongoing financial commitments. Before embarking on your quest for finance, or pre-approval for your home loan, ditch all the outgoings that you can. Pay out your credit card debts and sell any products that you may be paying off with personal loans if you are able.
Proof of your ability to save is particularly important if you are buying your first home. You will probably be entitled to the First Home Owners Grant (FHOG) which will assist, but it is also the pattern of saving history that the lender will be looking for.
A good saving history will tell a potential lender if you are likely to be able to keep up with regular repayments.
If you haven’t such documentation, all is not lost, as what your potential lender will want to know, in the absence of a saving history, will be your ability to repay the loan.
If you already have a home loan and want to refinance, a savings pattern is not so important, as your potential lender will have your loan repayment history to assist him in his decision.
You will need however the best part of a 20 per cent deposit. Especially in the present economic climate in the aftermath of the Global Financial Crisis (GFC).
Home Loan: How much can I borrow – The importance of income.
Household income is probably the most important factor in determining the amount you will be allowed to borrow on your proposed home loan.
If you are married or buying your home in conjunction with your partner the household income factor rises and in turn so does the probable amount you can borrow. But this must be seen in reality and account must be taken about what would be the situation if one of the partners was to lose his or her job or if a child or children were to enter the domestic scene.
Many home owners today fall back on refinancing their home loan when circumstance change dramatically but this can be a costly exercise and could possibly be avoided if more thought about the future was made right from the beginning.
When determining how much you can borrow you must, repeat must, keep all costs associated with the home to no more than 40 percent of your gross salary. Loan repayments alone should never exceed 30 per cent.
You must not forget that besides the cost of repaying the home loan there are other costs involved in home ownership and all these must be taken into account. Some of these being:
- House repairs
- Repainting
- General maintenance
- Council rates
- Home insurance
- Water costs, etc.
These costs can add to a substantial sum when worked out on an annual basis and should therefore be kept to no more than 40 per cent of your gross salary including the repayments.
Home Loan: How much can I borrow – Financial commitments.
Your potential lender will look critically at all your current financial commitments and debts in order to help him or her determine the amount you will be allowed to borrow. Before going to the interview make a determined attempt in getting rid of all the outstanding debts that you can and if possible get rid of your credit cards.
Go into the interview with as little financial baggage that you can and you will be rewarded with a larger borrowing capacity that could mean the difference between the dream home on the hill or the servants quarters. It’s in your interest!
Many people have dreams of purchasing their own home but very few can buy one without borrowing.
In doing so, you may be shopping for loans or mortgages. Lenders look at many different, complex and complicated factors when determining approval for loans and the rates for them. They determine the amount you can repay comfortably based on a number of factors.
Each lender has their own set of factors that they use to determine approval for loans, rates, and the amount, but there are a number of factors that are pretty widely used.
Factors That Determine Approval For Loans
- Payment history – Do you pay on time? This is a big determining factor. Payment history includes credit cards, auto payments, mortgages, and loans of all types. Bankruptcy is also taken into consideration.
- Outstanding debt – Most adults will have debt but the lender wants to know how much you have. Outstanding balances for credit cards, auto payments, mortgages, loans and such will determine a large portion of your score also. They will also see how many accounts carry balances.
- Debt to income – The classic ratio of what you owe to what you make. This ratio is used to determine your ability to pay your current debt and possible future debt if you are approved for any loans or mortgages.
- Credit History – How long have you had credit? The length of your accounts and usage is taken into account. Not only does this show items like foreclosures and bankruptcies, it also shows items like attempts at repaying debt. Loan processors use this to try and determine how reliable you are to pay back the loans.
- Pursuit of new credit – Each time you apply for credit, it is noted in your credit history and lenders look at that as well.
- Income – Current income is a significant factor in determining loan approval as it helps demonstrate your ability to pay back any loans or mortgage.
- Employment History – This is used by lenders to learn about your stability, but they may ignore this factor as there are sometimes things that affect employment length.
- Down payment – For mortgages, having a down payment is very useful in the approval process. Having a down payment means that the amount you borrow will actually be less than the cost to purchase the home. Sometimes, having a down payment can greatly affect the monthly payments.
- Liquid Assets – How much money do you have sitting in your savings and checking accounts? Lenders use these amounts to determine if you keep enough money for unexpected events. If you live check to check, they will assume that you may miss a payment due to lack of money.
Keep in mind that no matter what your levels are, there are always things you can do to improve them and your chances of being approved for loans and for large amounts. Utilize online baking tools such as loan calculators and learn your situation. Educate yourself, speak to credit counselors or financial advisers to help maximise your levels and chances of getting the lending you desire.
Related Resources
Related Posts
- How to Calculate Your LVR
Your LVR, or loan-to-value ratio, is a critical number as it is one of the first criteria used to approve or reject applications for home loans. If the LVR is too high, a lender will consider the loan to pose a high level of risk and will prefer to reject it, unless there are other factors that will mitigate said risk for the lender, such as the existence of a guarantor. In any case, using a home loan calculator to work out your LVR is the first step to getting a home loan, as you’ll know if you are trying to get too much property for the cash you have available. - Essential Factors To Consider To Know How Much You Can Afford To Borrow
There are a great number of aspects to be taken into consideration when it comes to finding out the amount you intend to borrow for a home loan. Therefore, you will most definitely want to use the following pieces of information as a guideline that could help you and make the entire process easier. - Increase Your Income With Part Time Work from Home
There are probably more people doing part time work from their homes than ever before in history. When the economy is down or the expenses are high, working for extra income is a part of life in order to survive; read on for ways to make more money without leaving home. - Bad Credit - You Can Still Mend It!
Most people believe they are doomed if they have a less than stellar credit file as they will never again be able to obtain a loan. However, this is not precisely true as some lenders can be a little more flexible than others and there are also lenders that specialise in bad credit loans. Of course, you can’t expect to obtain the same conditions as a standard loan because you pose a higher risk to the lender meaning that a bad credit loan will often be significantly more expensive. - Getting A Loan Even Without Savings
It is possible to get savings loans even if you have not built-up enough money for a deposit or have stumbled into a large amount of money at one time. You will have to find the right lender to work with, however, and certain criteria must be met in different cases. - How Your Credit Rating effects how much you can borrow
Buying a home loan is a great thing, and can be a bit overwhelming for many. You may be wondering what chance you have of being approved for a loan and if so, how much, and at what rate. One of the biggest factors in determining your home loan is your credit rating, or credit score. - 95% Loan to Value Ratio Loans for Your Home
The greater the LVR, also referred to as the Loan to Value Ratio, is on the home you're attempting to purchase, the more difficult it will be to get adequate home loans to cover the total cost. It's impossible to get a home loan without at least paying some money down these days. That doesn't mean that getting a home without coming up with the full price on your own is out of the question. You do still have a few options open to you that don't require a fancy home loan calculator to figure out. - How Much Salary Should You Have for a Home Loan?
If you are considering buying a home then you should read this article and find out how much salary you should have for a home loan. - How to Increase Borrowing Power without Needing Equity
If you want to increase your borrowing capacity then you should read this article and find out how you will be able to do so even if you have little equity. - How Much Deposit Do I Need?
When buying a home you will have to pay a lot of costs upfront. If you are buying a property you should ask yourself, how much do I need upfront? - How Much Can I Borrow For a Home Loan?
When you are looking at buying a home you should figure out how much you can borrow. Read this article to find out all the advantages of finding out how much you can borrow. - How Much Should you Borrow
If you are investing in property then knowing how you will gear the property is very important. Read this article and find out how much you should borrow. - The Secret to Increasing your Borrowing Power
When you apply for a loan you will be accepted if you have good borrowing power. Read this article and find out how to increase your borrowing power. - Can you Afford a House Without Government Incentives?
Government incentives make buying a house easier. Read this article to find out whether you can afford to buy a house without government incentives. - Co-borrowing and Family Support when getting a home loan
By using the co-borrowing and family support options you may be able to get a better loan. read this article to find out how these options can help you. - Silver lining for borrowers as new home sales fall
If you are one of those who like to push against the trend in order to get yourself a deal in both the property to be purchased and the home loan to finance it, now is the time to act. - Home Loan Deposit
Home loan deposits are required for nearly all home loans. Read this article to find out how much the deposit will cost you and what the benefits of paying the deposit are.
Ask A Question