Here are our top 10 tips to maximise your borrowing capacity:
1. Reduce your existing debts:
Lenders assess your ability to repay your debts, so pay off as much as you can before applying.
Best ways to achieve this are to start by creating a budget that includes all your income and expenses. It will help you identify areas where you can cut back on spending and allocate more money towards debt repayment.
Identify which debts have the highest interest rates or the highest balances and focus on paying those off first.
Use windfalls to pay down debt: If you receive a bonus at work or a tax refund, consider using that money to pay down your debts instead of spending it on something else.
Consider consolidating your debts: If you have multiple debts with high interest rates, consider consolidating them into a single loan with a lower interest rate. This can make it easier to manage your debt and save you money on interest charges.
2. Increase your income:
Consider a side hustle or ask for a raise.
3. Save a larger deposit:
Aim for at least 20% of the property’s value to avoid Lenders Mortgage Insurance.
4. Maintain stable employment:
Lenders prefer borrowers with a steady income and employment history.
5. Minimise credit inquiries:
Multiple credit inquiries can negatively impact your credit score, so avoid unnecessary applications.
Credit inquiries such as credit card or loan inquiries can lower your credit score, typically by a few points, especially if you have multiple inquiries within a short period of time.
Lenders view multiple inquiries as a sign that you may be taking on too much debt or that you’re having financial difficulties. However, multiple inquiries made within a certain timeframe (such as 30 days) for the same type of credit product (such as a mortgage or an auto loan) are usually treated as a single inquiry and have less impact on your credit score.
6. Keep good credit habits:
Pay bills on time, avoid defaults, and regularly check your credit report.
It’s important to regularly check your credit report to ensure that it’s accurate and up to date. Your credit report is a record of your credit history, including your credit accounts, payment history, and other financial information.
It’s used by lenders, landlords, and other organisations to determine your creditworthiness, so it’s important that the information it contains is correct.
Checking your credit report can help you:
- Detect errors: Mistakes can happen, and errors on your credit report can hurt your credit score and make it harder to get approved for credit. By checking your credit report regularly, you can identify any errors and take steps to correct them.
- Prevent fraud: Identity theft and other forms of fraud can damage your credit score and make it difficult to obtain credit in the future. By monitoring your credit report, you can identify any suspicious activity and take steps to protect your identity.
- Monitor your credit score: Your credit report is used to calculate your credit score, which is a key factor in determining your creditworthiness. By checking your credit report regularly, you can monitor your credit score and take steps to improve it if necessary.
Your credit score can be directly accessed if required by directly approaching a credit agency. It’s good to know your credit score as a score above 600 is generally favourable to lenders.
If you notice any errors or suspicious activity in your credit score, you should contact the credit bureau and the relevant creditor or lender to report the issue and take steps to correct it.
7. Use a mortgage broker:
They can match you with the right lender and help you get the best deal. There are hundreds of lenders out there, not just the big four banks. A Mortgage Broker is well equipped with knowledge across various lenders but not all brokers have access to the same lenders. So, check their lenders board before engaging with a Mortgage Broker.
8. Consider a guarantor:
A guarantor with a strong financial position can increase your borrowing capacity.
9. Shop around for lenders:
Different lenders have different lending policies and criteria, so compare offers. Once again, your Mortgage Broker can do the work for you here at no cost direct to you.
10. Provide accurate and complete information:
Lenders verify all the information you provide, so be truthful and upfront.