Seven steps to increase your borrowing power

Borrowing power can vary significantly from individual to individual, based on their financial circumstances and choice of lender.

That’s why two friends who appear to have a similar profile can be approved for very different amounts of finance. It’s also why the same consumer might find the amount of money they’re able to borrow today is very different from the last time they took out a mortgage.

That presents you with an opportunity, because it means there are steps you can take to potentially increase your borrowing power. They include:

Reducing your expenses. You can save money through both minor actions (bringing your lunch to work, cancelling subscription services, cutting back on nights out) and major actions (taking a local holiday over an overseas holiday, buying a used car over a new car, refinancing a home loan - or holding out on non-essential expenses for the time being). 

Increasing your income. This is easier said than done, but can potentially be achieved by asking for a raise, doing extra shifts or starting a side hustle.

Reducing your debt. If you have less debt, lenders understand you’ll need to spend less money on existing loan repayments, and will therefore have more money to service a new home loan.

Reducing your credit card limit. A credit card can reduce your borrowing capacity, even if you use just a fraction of your monthly limit or pay your credit card bill in full each month. That’s because lenders assume you’ll spend most or all of your limit each month, and potentially make just the minimum repayment. So reducing your credit card limit, or cancelling your credit card, should increase your borrowing capacity.

Improving your credit score. Lenders generally check your credit score when you apply for a home loan. The higher your score, the more likely you are to be approved for a loan and the larger that loan is likely to be. There are a range of steps you can take to improve your credit score, including paying all your bills on time, making all your loan repayments on time, closing out loans and limiting your credit applications.

Saving a larger deposit. The larger your deposit, the more creditworthy you’ll look in the eyes of lenders, and therefore the more willing they’ll be to lend you money.

Consulting a broker. I have access to a panel of lenders, which means I can recommend lenders that are likely to look favourably on someone with your profile. Also, I can present your application in a way that aligns with that lender’s credit policies, to maximise your chances of being approved for finance and being given a larger loan amount.

Published: 14/5/2024

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