What influences borrowing power?

Banks and specialist lenders want to know one thing – can you afford to repay the money they’re lending to you?

Here are some of the factors that banks and lenders look at when they evaluate your ability to repay the loan:

• Your income. If you earn more than the minimum requirements (the loan repayments can only be a certain percentage of your monthly earnings), then you’ll likely be approved. This is called a debt-to-income ratio.

• Your current loans and liabilities. If the total amount you're paying out on liabilities comes in lower than the lender's ratio limit for monthly liabilities against monthly income, then you’re all good.

• Your employment status. It’s no secret that having a well-paying, full-time job is the ideal position to be in when getting a home loan. However, lenders are flexible when it comes to people working part-time, casual or are self-employed. They might ask for a bigger deposit and charge a slightly higher interest rate, but it’s still possible to get a loan.

• Two incomes. If you and your partner are both working, it can make a big difference to how much you can borrow. This means that you could end up being able to borrow more than you originally thought.

• The type of property you’re buying. This is one that’s often not thought of. If you’re buying ‘off-the-plan’ you might not be able to borrow as much as you like due to the potential risks involved. This applies to properties in rural or remote areas too, as the number of willing buyers might be limited if you need to sell in a hurry.

If you'd like to know more about what your potential borrowing power could be, get in touch and I can crunch the numbers for you.

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