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Posts Tagged ‘Savings’

Borrowing Capacity

Posted by Tamara McDowell on May 14, 2010

Your borrowing capacity is something you need to know before you commence your property search as it tells you how much you can spend on your new home and where you can afford to live. Many borrowers go a step further and pre-approve their loan prior to commencing their property search to confirm how much they can borrow.

Your maximum borrowing capacity will vary from lender to lender because lenders use different methods of assessment and different lending criteria. Your personal circumstances and your income will also play a crucial role on the amount that you will be able to borrow.

How do lenders assess my borrowing capacity?

A lender will typically review all your income sources and expenditure, add a margin, and then calculate your uncommitted monthly income. This is the most important factor to most lenders. The greater it is, the larger your borrowing capacity will be.

Basic criteria used to determine how much you can borrow may include:

  • Loan to Value Ratio
  • Income and types of income, e.g. casual, contract, full-time
  • Other loans
  • Credit card limits
  • Loan terms
  • Number of dependents and their situation
  • Type of Loan
  • Tax rates
  • Rental income
  • General living expenses, and
  • Existing asset position, including the size of your deposit.

They may also look at any property currently or previously owned and the type of property you are looking at (eg. house, apartment).

Tips for increasing your borrowing capacity

You may be able to increase your borrowing capacity by employing one or more of the following measures:

  • Pay off outstanding term debts (eg. personal loans)
  • Pay off and close any credit card, overdraft or line of credit facilities
  • Consider reducing the limit of any facility you maintain
  • Work out and stick to a budget to improve your deposit and savings history

Summary: Your borrowing capacity is an indication of how much you can borrow to purchase property. There are a number of different factors involved in calculating your borrowing capacity

If you would like a guideline assessment of your borrowing capacity, a more detailed assessment of your situation or to find the loan that is in your best interest, you can drop me an email tmcdowell@beyondtomorrowfinance.com.au or give me a call on 0430 722 092….I am happy to help!

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