Boost Your Borrowing Capacity: Key Strategies for Australian Homebuyers

Understanding Borrowing Capacity

Borrowing capacity refers to the maximum amount a lender is willing to loan you, based on your financial situation. This figure is influenced by factors such as income, expenses, credit score, and existing debt. Lenders assess these elements to determine your ability to repay the loan.

Improve Your Income

One of the most straightforward ways to increase your borrowing capacity is by boosting your income. Here are some strategies:

• Seek a Pay Rise or Promotion: If you're due for a salary review, negotiating a pay rise can significantly enhance your borrowing power.
• Add a Secondary Income: Consider taking on a part-time job or freelancing to supplement your main income.
• Include Rental Income: If you own investment properties, ensure this income is considered in your application. Most lenders will include between 70-80% of rental income when assessing your borrowing capacity.

Reduce Existing Debt

Minimising your existing liabilities is crucial. Here’s how you can reduce your debt:

• Pay Down Debts: Prioritise paying off high-interest debts like credit cards and personal loans.
• Consolidate Loans: Consider consolidating smaller debts into a single loan with a lower interest rate to reduce monthly repayments.
• Avoid New Debt: Refrain from taking on new debts or applying for new credit cards before applying for a home loan.

Optimise Your Credit Score

A good credit score is imperative for securing a favourable loan. Enhance your credit score by:

• Timely Payments: Always pay your bills and debts on time.
• Limit Credit Applications: Each credit application can impact your score. Only apply when necessary.
• Review Your Credit Report: Regularly check your credit report for errors and address any discrepancies promptly.

Manage Your Expenses

Lenders scrutinise your living expenses to assess borrowing capacity. Consider the following:

• Trim Unnecessary Costs: Cut down on discretionary spending, such as dining out and entertainment.
• Budget Wisely: Implement a strict budget to manage your monthly expenses efficiently.
• Save Consistently: Demonstrating a consistent saving habit can be favourable in the eyes of lenders.

Practical Tips and Advice

• Joint Applications: Consider applying for a loan with a partner or family member to combine incomes, thus increasing your borrowing capacity.
• Fixed vs. Variable Rates: Understand the impact of different interest rates on your repayments. Fixed rates offer predictability, while variable rates may offer lower initial repayments.
• Use a Mortgage Broker: A broker can offer insights into various lender policies and suggest lenders that align with your financial profile.

Common Mistakes to Avoid

• Overestimating Income: Ensure your income projections are realistic and backed by documentation.
• Ignoring Lender Policies: Different lenders have varying policies. Failing to understand these can lead to application rejections.
• Neglecting to Compare Lenders: Not all lenders offer the same terms. It's crucial to shop around for the best deal.

How Esteb and Co Can Help

At Esteb and Co, we specialise in helping Australians navigate the complexities of home loans. Our team provides personalised advice to enhance your borrowing capacity, ensuring you secure the best possible loan terms. We understand the intricacies of lender policies and can guide you through every step of the process.