How to Increase Your Borrowing Capacity
Banks are always tightening up their lending criteria with all the fluctuations that happen in today’s economy, more and more borrowers are being turned away!
If you’re wonder what you can do to increase your borrowing capacity, then keep on reading.
- Consider if credit cards are being used
Credit cards can be useful when you have a lot to buy. But they have a great impact on your borrowing power. For example, if you are in possession of three cards, each of them having a limit of $10,000, then most potential lenders will look at that limit of $30,000 as your liability – even if they all have a zero balance.
This can greatly decrease your borrowing capacity. In order to increase your borrowing power, see which card (or cards) can be spared and close them down, or decrease the limit – bonus side effect, that annual fee will also be saved.
- Pick your lender before you apply
Every lenders has their own policy on how they assess your borrowing power, your income and your expenses. For example, some lenders will only use 80% of over-time and allowances, same may consider 100% in some circumstances and some may not use it at all unless you’ve been with the same employer for 2 years. This is just one area to consider, some lenders will put a buffer on your existing debts, some will have higher benchmarks than others and some credit score heavily. By knowing which lender will work for your circumstances before you apply, you’ll not only increase your chance of getting the amount of funding you need – you’ll also increase your chance of getting approved!
- Keep your credit history clean
Maintaining a clean credit file will increase your chances when you want to apply for a loan and give you access to a wider choice of lenders – as a result, your borrowing capacity may be greater.
- What to do when you have more than one debt?
It’s becoming more common every year for borrowers to have multiple debts, each at different interest rates, over different loan terms, with varying amounts of monthly fees. By rolling all the debts into one easy to manage repayment, you could be reducing the overall monthly repayment, a lower repayment on your personal debts generally leads to a higher borrowing capacity.
If you’re struggling to borrow the amount you need for your new home, a consolidation of your personal debts might be just the answer – plus it could have the added sider effect that your finances become easier to manage.
- Check how much you spend on a monthly basis
Before the property search starts, you should check how much you can borrow based on your current expenses. Most lenders take living expenses into consideration when they review applications.
Things like educational fees for your kids or costly club memberships are factors that will be taken into account when a potential lender determines your borrowing capacity. Consider what areas you may be able to curb spending and make the changes before you apply.
There are some simple things you can do – we’ve only covered a few today. One of the best things you can do is get an experienced finance broker to work with you. They will be able to consider your current position, discuss ways to improve or change your situation and will know which lenders may match your goal and requirements. You’d be surprised at just how different each lender can be.