The first thing that comes up when you start planning to buy a house is to determine your budget. Once you have a budget in mind, the next step would be to work out the amount you would like to borrow for your first home. The amount you are able to borrow depends on several factors related to your borrowing capacity. When buying a home or a property, your borrowing capacity will affect the amount you could spend to purchase the property. These factors will improve your home loan eligibility significantly. Some of the factors which can help you maximise borrowing on your first loan are listed below.
Improve your credit score
The simplest method to improve your credit score is to be regular with your credit card and loan payments. The interest rate offer you get on a loan depends on your credit score. Raising your credit rating insures a better interest rate, which means you will be able to borrow a higher loan amount. Good credit scores assure the lender that you will make the payments on time and can be trusted with a higher loan amount.
The easiest way to improve your credit score before applying for a home loan is by paying your bills and credit card payments on time and limiting excessive or new lines of credit. Holding too many credit enquiries on your report could lower your credit score.
Arrange a bigger deposit
The amount borrowed by a lender may depend on the deposit you make in relation to the value of the property, this is known as the loan-to-value ratio (LVR). Putting down a larger deposit amount (say around 20%) will save you from paying PMI (private mortgage insurance) and saves you a lot of money over a period of time. Bigger deposits could also reflect that the borrower can save money and make the repayments on time.
Lower your debts
It is a good idea to lower your outstanding debts or pay them off completely before applying for a home loan. If your debts are cleared or at least lowered, you could have a better chance of getting a higher loan amount from the lender.
Opt for a longer tenure loan
The normal period of a home loan extends for 25-30 years. If you opt for a longer tenure for your loan, say around 40 years, it will lower your repayment amount. Although increasing loan-term makes your repayments low, the total interest to be paid towards the loan will get higher.
Reduce unnecessary living expenses
Another method of saving money is to cut unnecessary everyday expenses. The more you spend, the lower the loan amount you would get. It is advisable to reduce spending on things that are not needed and commit that amount to your savings. Creating a budget helps here as you could clearly track where your money is flowing, which allows you to make changes towards maximising your savings.
Organise financial records
It is essential to keep your financial paperwork up to date, especially if you are self-employed. Lenders usually check the records of your account and tax payments for at least the past 2 years. It is best to organise your financial statements before you visit a lender to apply for the mortgage.
Source additional income
Your home loan amount can be increased if you have another source of income, like earning an extra income in addition to your main job. It could be anything from getting rental income, tax refunds, side-hustle or income from doing multiple jobs.
Take joint loans
Choosing to take joint loans with your partner can help you to maximise your loan amount. A lender will consider the incomes of your partner and you, which helps in getting a higher loan amount.
Getting help from family
Using a guarantor like your parents or a family member or you can take help from the family offset mortgage. The lender will assess your guarantor’s financials and may offer you a higher loan amount. It is important to remember that in the case you are not able to make the payments, your guarantor will be liable to pay off the loan.
Use a broker
The expert mortgage brokers at Accord home loans can guide you through the loan process. Our team will help you to choose from various offers to match your requirements.