- Home Loan Calculators
- How Much Can I Borrow?
- Refinance Your Home Loan
- Fixed Rate Home Loans
- Interest Only Home Loans
- Variable Rate Home Loans
- Fixed vs Variable Interest
- Debt Consolidation
- Lenders Mortgage Insurance
- Home Equity Loans
- Interest Rates Information
- Mortgage Brokers
- First Home Buyers
- First Home Buyer Grant
- Stamp Duty
- Investing In Property
- What To Consider Before Buying
- Finance Tips For Renovators
- Pre-Renovation Checklist
- Renovating vs Buying a New Home
- Home Loans Comparison Guide
- Home Loan Application Checklist
- 10 Mortgage Repayment Tips
- About Home Loans
- Home Loan Lenders
- No Deposit Home Loans
How Much Can I Borrow?
Before you can set a realistic budget for buying your dream home, you’ll first need to find out how much you can borrow.
Your borrowing power depends on your income, assets and current living expenses, as well as the size of your deposit and credit history.
Here are three things to consider in order to potentially improve your borrowing power.
1. How much can you save for a home loan?
Living expenses have a way of eating into your cash flow, so keep a record of what you’re spending. You might be surprised to see where your money is going – and how much you can save.
Cutting back on large and unnecessary expenses might help boost your borrowing capacity, but you don’t have to be too strict with your budget – make sure there is a little wiggle room for things like holidays or brunches with friends.
2. How much deposit do you need for a home loan?
As a general rule, the more money you can put down upfront the better. Sometimes this isn’t an option, therefore a Low Deposit Loan might suit you – often referred to as a No Deposit Home Loan – although this shouldn’t be your first preference.
Not only does a bigger deposit mean you won’t have to borrow as much, it may also help you avoid paying Lenders Mortgage Insurance (LMI), which protects the lender if you default on your repayments.
You are typically required to pay LMI if you need to borrow over 80% of the purchase price, but even a 20% deposit may not cover stamp duty and other fees and charges associated with buying a property.
If you need to add these costs onto your home loan, you may end up over the 80% threshold and liable for LMI, so aim to save at least 25% of the purchase price to create a bit of a buffer.
3. How is your credit rating?
Potential home loan lenders will access your credit history to see if you can afford the loan you are applying for, and whether or not you are likely to repay it.
Having a bad credit history may reduce your borrowing power and can potentially increase your interest rate, so make sure you review your credit history every 12 months to correct any mistakes.
It’s also a good idea to try to avoid extending the limit on a credit card or taking out a loan for a new car in the months before applying for a home loan, as the number of times lenders request your report can impact your credit score.
Understanding your financial position is the first step to boosting your borrowing power. Budgeting carefully, setting a savings goal and building a strong credit history can all help take the stress out of applying for a home loan.