With house prices drifting higher to start the new year, trying to afford your dream home is getting harder. Fortunately, there are a number of things you can do to maximise your borrowing capacity without needing to increase your income.
When lenders assess your borrowing capacity, they look closely at your fixed expenses as well as monthly living expenses. While it might not be easy to reduce all your costs, it’s worth examining some of your ongoing expenses that you can potentially trim. Subscriptions and memberships can easily stack up, as well as other non-essential costs. If you’re looking at buying a property, it might be worth sacrificing a few luxury items in the short term to make that happen.
These days, people often buy things on credit. The main issue with this is that purchases with something like a credit card often attract high interest rates. Things like car loans, personal loans and credit cards can really dent your borrowing capacity. It’s worth looking at consolidating your debts and rolling them over to a lower interest rate loan product. This will free up some serviceability. It could also be worth getting rid of your credit cards if you don’t really need them, as lenders assess these as if they are maxed out – regardless of how you use them.
Watch your credit score
Your credit score is like a track record of how you have managed credit in the past. If you’ve got a history of not paying your bills on time, then a lender will likely want to apply a higher interest rate to any loan you take out. This in turn, means you will be able to borrow less money. The good news is that you can start to repair your credit and lift your credit score. Simply paying your bills as soon as you receive them and staying on top of your credit card will help accomplish this. By always paying bills on time, you’re showing that you can manage money, which will mean lenders are more likely to want to work with you.
Choose the right home loan product
Depending on the loan features you need and the type of home loan product you want, your interest rate will vary. If borrowing capacity is an issue, it’s worth talking to your broker so they can compare home loan products and you can work towards your goals.
A mortgage broker should always be the first person you speak to, as they can assess all of your personal requirements and compare loan products that will suit your needs.