If you’re looking for a mortgage to suit your financial circumstances, the most important question to ask is:
What can I really afford to borrow?
When you’re paying rent and trying to save for a deposit at the same time, understanding the ongoing reality of servicing a mortgage and the extent of your lending limit is critical to your plans.
Take Control of Your Credit Rating
No matter what type of property you’re planning to buy, taking a careful look at your financial health is always recommended before you make any credit applications with any lender.
The state of your financial circumstances and credit record are the main things that determine your borrowing power so, unless your need for property is urgent, it’s smart to take the time to examine your finances thoroughly to ensure you can make the most of your mortgage opportunities.
Clear Your Debts
If you want to maximise your borrowing power, the first step is to minimise your debts. Paying down expensive credit cards is always a smart move to rid yourself of high interest charges. Then, consider reducing your credit limit with your credit providers.
Why? Because when you’re applying for any credit – from a car loan to a home loan – the lender looks at your credit limit, not the amount you still owe.
That $30,000 credit card limit you have might only have $2000 owing on it but to the lender, all they see is the fact that you have the power to rack it up to a $30,000 debt – and based on your earnings, that may affect what they feel comfortable lending you.
For any financial institution, it’s all about limiting their risk and exposure.
Cancelling cards you no longer use or have a need for can also help boost the amount you can borrow.
Your Savings History Is Important
A proven history of structured savings is seen positively by potential lenders and a good track record here can potentially smooth over the occasional debt hiccup along the way. Spend a few months paying all your bills on time – or early – to help create an improved credit history. When it comes to applying for finance, it’s important to look as responsible as possible – and, so you don’t get yourself into trouble with too much debt, it’s also very important to be honest and realistic.
How Do I Calculate My Lending Limit?
When you’re preparing to buy a property, doing some research is critical.
Before you invest hours of your time visiting properties to purchase – either as an investor or a first-home buyer looking for your ideal entry to the property market – it’s important you understand how much money you have access to.
It’s important to realise that, depending on your credit history and current financial circumstances, that amount may differ from lender to lender. To get a sense of what’s possible for you, search for an online mortgage calculator and use figures that are honest and as accurate as possible.
Enter your income (plus any additional income if you are buying property with another party) include all your regular expenses and the number of any dependents you have. The online calculator will assess your borrowing power based on this information.
Be aware that you will get different results from different mortgage calculators, depending on which bank or financial institution they calculator is affiliated with.
For the clearest picture, talk to an experienced mortgage broker who can punch your numbers into their preferred calculator. With many different loan products available, they can give you an overview of the lending limit available from a range of lenders. Remember that being offered more isn’t always a good thing. What’s important is that you borrow what you can afford to service – without stress.
If you need advice for a home loan, business or commercial loan, self-managed super fund loan, or a vehicle or equipment finance loan, speak to a broker at Lending Specialists. We have a wealth of experience under our belt and a robust network to connect you to the right industry professional for the loan you need.