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How to get a higher home loan?

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.

Decrease your credit

If you hold four credit cards with a $10,000 limit on each, lenders consider this a potential loan of $40,000, which significantly affects your borrowing capability. So consider returning that extra credit card to not only qualify for a higher home loan amount, but also save the annual fees.

Credit history

Paying your bills on time can help ensure you have a good credit history, which creates a favourable impression with the lenders. You can check your credit report from online resources, and if you find any anomalies, you should get these rectified without delay. A good credit history can improve your chances of loan approval while also enhancing your borrowing capacity.

Consolidate your debt

Having multiple loans for small amounts can raise some doubts with lenders. Consider consolidating various high-cost debts like 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 cannot 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 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.

Maintain financial records

Don’t rely only on your previous month’s salary slip and keep your financial records updated. If you’re able to show rental income, earnings from investments, or overtime and bonus pay to the lenders, it can enhance your borrowing capability. When you provide accurate and complete documentation, it not only saves your time and efforts but may also qualify you for a higher loan amount as lenders are able to assess your income accurately.

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 can boost your borrowing capacity with lenders. You can reduce the Lenders Mortgage Insurance (LMI) by paying a higher deposit or eliminate it if you pay a deposit of 20 per cent or more. The LMI expense saving can improve your repayment capacity, which may entitle you to a higher loan amount.

Take some time to research how to get a higher home loan and check your borrowing power with multiple lenders. But once you know what you’re looking for, submit your home loan application to only one lender, as multiple applications could lead to multiple rejections, negatively affecting your credit score and potentially reducing your borrowing power.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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