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How to get a higher home loan?
You've found your dream property, but on checking your borrowing capacity, you come up short. There are some ways to strengthen your financial position and enhance your borrowing capacity to help you purchase your dream home.
Ways to boost your mortgage borrowing power
- Decrease your credit
Having existing credit can limit the amount you’re offered by a home loan lender. For example, if you hold two credit cards with a $10,000 limit on each, lenders consider this a potential loan of $20,000, which significantly affects your borrowing capability. Any lines of credit you have are assessed in your application as if they were maxed out. Meaning, even if you always pay your card balance on time each statement period, a lender will test your borrowing power as if you had a $20,000 debt.
It may be worth considering lowering your card limits, or returning an extra credit card to not only qualify for a higher home loan amount, but also save the annual fees. Be cautious of cancelling your cards altogether as this can actually lower your credit score.
- Credit history
Paying your bills on time can help ensure you have a good credit history, which creates a favourable impression with the lenders. The better your credit history, the higher your credit score, and the more favourably a lender will view your application.
A good credit history may improve your chances of loan approval while also enhancing your borrowing capacity. Consider getting a copy of your credit history from any of the major bureaus and going through it to ensure records are accurate. You may also view your credit scores at any time through RateCity’s Credit Score app.
- Speak to a broker
If you’re not sure that you’re being offered the best deal, or you want to speak to an expert for more personal information, it may be worth engaging with a mortgage broker. A broker may assist you in finding the right home loan for your specific financial needs and goals, so you can get a foot on the property ladder within your budget.
They also often have special broker deals with some lenders, offering you more competitive interest rates, or recommending you to lenders more likely to approve you for a higher borrowing limit.
- Consolidate your debt
Having one or more debts outstanding will lower your approved borrowing amount. It is worth paying off any debts before you apply for a home loan to boost your borrowing power.
Consider consolidating various high-cost debts, such personal loans and outstanding credit cards into a single debt, which can help streamline your payments. Debt consolidation may also provide better interest rates that can result in significant savings. Paying less interest on a consolidated debt may help to increase your borrowing capability.
- Decrease spending
You may not be able to increase your salary, but you can control your expenses. Lenders consider various categories, such as groceries, entertainment, utilities, dining out, health, and transportation, when determining your borrowing capability. Make a budget for all these expenses and identify regular expenses that can be reduced or eliminated.
Also, maintain receipts for any non-recurring one-time expense to show to the lenders. Most financial institutions consider three to six months spending in the lead-up to your home loan application, so reducing your expenses during this time may help boost your borrowing capacity.
- Increase your savings
Financial institutions will check your bank account for a period of three to six months from the date of application. A history of financial discipline resulting in genuine savings may boost your borrowing capacity, and chance of approval, with lenders.
Additionally, by saving a larger amount upfront, you may avoid paying costly Lender’s Mortgage Insurance (LMI). This means more of your cash can be put towards the home loan itself, which may entitle you to a higher loan amount. If you manage to find a property that qualifies for stamp duty exemptions, the amount of your savings that can go towards the deposit could be further boosted, helping to increase your borrowing power.
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Product database updated 20 Apr, 2024
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