Looking at buying your first home? Then your ‘borrowing power’ is a critical number to know.

Most lenders have online calculators to help you work out a rough estimate. But if you want a more precise figure before kicking off your house hunt, getting pre-approved by a lender is a great idea.

To maximise your borrowing power, check out the key things your lender will consider when assessing your application.

Your disposable income

How much money do you have left after meeting all your living costs and other debt costs? This is a key thing your lender will look at.

Many lenders use standardised expenses, but if you have regular costs to meet (like high transport costs, school or childcare fees and online subscriptions), these will all be included in your servicing calculation, reducing your total disposable income.

To increase your affordability, look at where you can cut some regular expenses. For example, if you have monthly subscriptions to several streaming services, can you cut those back to one? The higher your affordability, the higher your borrowing power.

Your overall financial picture: credit scores and debts

To determine how much you can afford to borrow, your lender will consider your debt-to-income ratio, factoring in all your outgoings as well as your credit score.

Even if you have disposable income, a challenging credit history can negatively impact your borrowing power, and so can a high level of debt. On this note, keep in mind that not all debts are created equal: your lender will look at a number of factors, including the type of debt you have and how it affects your overall financial health.

The bottom line? If you are looking at applying for a mortgage, it’s a good idea to come up with a plan to improve your credit score and tackle debt head-on. Once again, our team will be happy to help you.

Your credit card limit

Credit card debt isn’t necessarily ‘bad’ if you pay it off on time. What you may not know, however, is that even if you pay it off each month or rarely use them, your credit card limit can still affect your borrowing power.

The limit available will be calculated into your available income. For example, if you have a limit of $10,000 with nothing owing on it, your mortgage borrowing potential may still drop by thousands of dollars. If you’d like to maximise your borrowing power, our advice is to choose a low credit card limit (if possible), or close the credit card account altogether if you aren’t using it.

The size of your deposit

It might sound obvious, but the more money you have put aside for your property deposit, the easier it will be to increase your borrowing capacity (and perhaps get access to a more favourable interest rate).

While saving for a large deposit isn’t always easy, there are ways to boost your down payment. For example, you could use KiwiSaver, get a HomeStart grant, or even receive a parental gift. Either way, how much will you need?

Under the current LVR restrictions, you will usually need a deposit of at least 20% to buy your first home as an owner-occupier, or 30% as an investor. There are exceptions to this rule, and that’s why it’s important to talk with a mortgage adviser: by getting a clear understanding of your circumstances, we will be able to point you in the right direction.

Like to find out more about your borrowing power and how you can optimise it? We are here to help. Please don’t hesitate to contact us and get your journey to home ownership started today.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek advice from a financial adviser.

Leave a Comment