ATTN Home Buyers!

Working out your borrowing capacity is an important step in the buying process.

Borrowing capacity is the maximum amount a lender will lend you to buy a property.

The benefit of working out your borrowing capacity is it helps to give an indication as to the property you can buy.

The reason why lenders set a limit is to try and prevent people from borrowing more than they can afford to repay.

There are a number of problems we find with people working out their borrowing capacity.

1. They rely on online calculators to work out their borrowing capacity.

Online calculators are great, but they serve as a guide only. If you rely on online calculators, you may find your “actual” borrowing capacity is less than the amount the online calculator is giving you.

This can lead to you wasting your time researching and negotiating property and could even cost you money if you rely on this information.

You will get a much better indication of the amount you could borrow by talking to an experienced and qualified mortgage broker. They can also help you to identify any potential issues with your situation that may result in your application being declined by the lender.

2. Thinking that all lenders are created equal.

Not all lenders are created equal. Whilst they may rely on similar kinds of information like your assets, liabilities, income, and expenses to work out if and how much they are prepared to lend, the actual amount can and often varies.

If you are looking to borrow more than your current lender is prepared to, it might be worthwhile exploring other lenders.

Other lenders may also have a better offer/proposition that may be overlooked.

3. Borrowing up to their credit limit

On the surface this may not seem to be a big issue, and for some it might not be.

What we encourage people to do is see how the new loan will “fit” into their household budget. If you borrow up to your capacity, it may mean that you have to spend less than you currently do on discretionary spends like dining at restaurants, going for a night on the town or getaways and holidays.

It may also mean that you need to have a closer eye on your household budget to make sure you continue to make your new home loan repayments.

Financial Health Check

Before taking out a loan and committing to a property, it’s a perfect opportunity for a financial health check.

A financial health check is a review of your current financial situation.

Some of the key benefits of a health check include:

• Understand how “healthy” your finances are- identifying opportunities to improve your overall financial health.
• Make changes to your financial situation before applying for pre-approval which may be declined and could out less pressure on your household budget.
• Get a much more accurate indication of the amount of money you could borrow.
• Understand how a new home loan and the amount borrowed fits into your financial situation and the impact.
• Implement a protection strategy for your income and your life, should something unforeseen occur like an injury, illness, or even early passing that prevents you from making your repayments.

We offer FREE Health Checks to our clients and prospective clients.

Book your FREE Health Check here.

Have a great week!

The team at Build & Protect Financial Services