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How to maximise your borrowing capacity: a comprehensive guide

6 min read

Diem Tran

From saving for your deposit to finding a property within your budget, there’s no denying purchasing a property doesn’t happen overnight. Before you start searching, work out your borrowing capacity.

Define 'borrowing capacity'

Your borrowing capacity is the amount of money a lender is willing to offer you when you apply for a home loan. A professional can calculate this, or you can get a rough estimate using an online borrowing calculator.

But between interest rate hikes, skyrocketing property prices and the rising cost of living, many prospective borrowers have had to think outside the square to maximise borrowing capacity to purchase their dream home.

In this guide, we’ll discuss how a lender may calculate your borrowing capacity, the factors that currently impact your borrowing capacity, and provide actionable tips on how you can increase your borrowing capacity.

The five factors that affect your borrowing capacity

Your borrowing capacity provides insight into how much you may be able to borrow to purchase a property. Naturally, this would include factors that make up your financial profile. Some of the key factors that affect your borrowing capacity include:

  • Your income — Whether you work full-time or part-time, are a freelancer or manage a side hustle, your income plays a part in deciding how much you’ll be able to contribute to your repayments.

  • Your expenses — This can include utility bills, grocery shopping, subscriptions and lifestyle spending. Again, this can determine how much you’ll comfortably be able to repay.

  • Your credit score — Your credit score and history indicate how well you manage your finances and include previous credit enquiries, if you’ve been late to pay bills or any court judgements in your name.

  • Any existing debts and liabilities — This refers to any debt you may have, such as credit card debt, a personal loan or other financial liabilities.

  • The value of the property and your deposit size — The property value and the size of your deposit influence the amount you will need to borrow.

How do lenders calculate your borrowing capacity?

Every lender will have their own method of calculating a person’s borrowing capacity. However, some common measures include:

  • Using the loan’s features, like the loan term, property usage, interest rate, repayment frequency, and fees.

  • By converting your annual income into a monthly amount.

Six ways to maximise your borrowing capacity

As a home loan lender, we often get asked by potential customers looking to join the property market, ‘how can I increase my borrowing capacity?’ With increasing interest rates, borrowing capacity is shrinking, so you may have to rethink your overall financial picture before applying for a home loan.

To put you in the best financial position possible and land your dream property, here are six ways to maximise your borrowing capacity:

  • Consider increasing your deposit — While it may feel like having to pause your hunt for the perfect property, increasing your deposit means having to borrow less, which may get you over the line for loan approval.

  • Pay down debt — Whether you’ve gone overboard with your credit card or still haven’t paid back a loan you took out years ago, make getting debt-free your top priority. If you have multiple debts, it may be worth consolidating them into one repayment. Not only does this make things easier to manage, but you’ll also save on interest.

  • Decrease your credit limits — While you’re at it, if you have a credit card you rarely use or only in the case of emergencies, consider lowering your card’s credit limit or closing the account altogether. Any credit in your name is viewed as a liability by a lender, whether you’re using it or not.

  • Grow your income — The more you earn, the more financial capacity you have to make your repayments. Of course, this tip is easier said than done and may not be achievable in every situation. However, if you are in a position to negotiate a pay rise or change jobs, having extra cash in your pocket can make a difference to your borrowing capacity.

  • Minimise expenses — Let’s face it, we could all stand to do better with our spending habits, especially when it comes to securing your dream property. Take a look at your monthly budget and highlight areas where you could be spending more mindfully. While it may mean having to forgo a night out now and then, it will give you the financial leverage you need when approaching a lender.

  • Choose the right home and the right loan — Finding an affordable home loan is essential to avoid being locked out of the property market and maximising your borrowing capacity. This may mean sticking with the default loan term of 30 years, and shopping around for a competitive deal. Borrowing at your maximum capacity may also be nerve-racking, so buying and living within your means could be the better decision in the long run.

Quick and easy home loan approval with Tic:Toc

For many Australians, navigating the property market can feel almost impossible, especially when getting home loan approval. And if you’re after a fast and simple home loan application process, look no further than Tic:Toc.

We’ve worked hard to give our customers a streamlined application by automating the entire process. Our system can provide real-time lending decisions, so you won’t be left wondering where you stand with your home loan.

At Tic:Toc, we understand how complicated the home loan process can be, which is why we keep things transparent and easy to understand—from our rates to breaking down home loan terminology.

Whether you’re a first-time home buyer, a refinancer or an investor, we can help you find the right loan solution. Find out how much you could be approved to borrow by contacting one of our lending specialists today.

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