How do I improve My Borrowing Power?
How do I improve My Borrowing Power?
Whether you're looking to purchase your first home, refinance your existing mortgage, or expand your investment property portfolio, your borrowing power is crucial in determining your financial opportunities. Lenders assess various factors when deciding how much you can borrow, so improving these factors can significantly boost your chances of securing a larger loan at a competitive rate.
Here are some effective strategies to enhance your borrowing power in Australia:
1. Increase Your Income
Lenders assess your income to determine your ability to repay a loan. Increasing your earnings—whether through a salary raise, a side hustle, or rental income—can strengthen your borrowing capacity. If you're self-employed, ensuring your financial records are up to date and accurately reflect your earnings is essential. Ask your broker about your particular job or industry and see if there is a lender who will look at your income more favourably.
2. Reduce Existing Debt
Banks and Lenders do not like unsecured loans. They do not favour high credit card balances, buy-now-pay-later cards, or personal loans. A car loan may also limit your borrowing power. Paying off or consolidating outstanding debts before applying for a mortgage can improve your debt-to-income ratio, making you a more attractive borrower.
3. Minimise Credit Card Limits, Cancel ALL Buy Now Pay Later Cards.
Even if you don’t use the full limit on your credit card or buy-now-pay-later-card, lenders consider the entire credit limit as potential debt. Reducing your credit card limits or closing unnecessary cards can positively impact your borrowing capacity. Some lenders may request that you have twice the savings for every unsecured debt that you have.
4. Improve Your Credit Score
A strong credit score increases your chances of securing a loan with favourable terms. Ensure you make timely payments on all bills, avoid multiple credit applications, and regularly check your credit report for errors or inconsistencies. You can do this free of charge every three months. Here is a great Australian Government Website that has more information about your credit score and protecting it.
5. Save for a Larger Deposit
A bigger deposit reduces the lender’s risk and increases your chances of getting approved for a larger loan. It also helps you avoid Lenders Mortgage Insurance (LMI), saving you thousands of dollars. There are also Australian Government Schemes that will guarantee 15% of your loan, meaning you only have to save a 5% deposit, or if you are a single parent, you’ll only need to save a 2% deposit, and the government will guarantee the other 18% for those who qualify for the scheme.
Suppose you can’t save a 20% deposit and don’t meet the Australian Government Requirements. In that case, some lenders will now offer 100% Loan to Value Ratio Loans for high-income earners with excellent credit scores and limited unsecured debt.
6. Cut Down on Unnecessary Expenses
Lenders review your spending habits to assess financial discipline. Reducing discretionary expenses such as dining out, subscriptions, and luxury purchases in the three to six months before your loan application can improve your borrowing power.
7. Choose the Right Loan Structure
Different loan types and repayment structures impact your borrowing power. Consulting with a mortgage broker can help you find a loan option that maximises your borrowing capacity while aligning with your financial goals.
8. Consider a Joint Application
A joint application could enhance your borrowing capacity by combining financial resources if you have a partner or family member with stable income and a strong credit history.
9. Extend Your Loan Term
Opting for a longer loan reduces monthly repayments, which can improve your serviceability in the eyes of lenders. However, this may result in higher overall interest payments, so weighing the long-term cost is important.
10. Work with a Mortgage Broker
Navigating the mortgage landscape can be complex, but an experienced mortgage broker can help you explore different lenders, identify the best rates, and structure your application to maximise your borrowing power.
At Best Foot Forward Mortgage Solutions, we specialise in helping professional Australians secure the best mortgage solutions to grow their wealth. If you want to boost your borrowing power and take the next step in your property journey, contact us today!
Need expert advice on improving your borrowing power? Contact us now for a complimentary discovery call.
The information contained is general information only and does not consider your personal objectives, financial situation and needs. We strongly recommend that you do not act on any information provided in this website without individual advice from your trusted advisor. You should also obtain a copy of and consider the Product Disclosure Statement for all financial products before making any decision.
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