How much can I borrow for a mortgage?
WITH LEIGH DELEDIO AND DANIEL WALSH FROM UFINANCIAL
Is “How much can I borrow?” a lingering thought of yours? Then this article is for you!
The answer hinges on several factors, encompassing your income, expenses, credit history, and the general lending policies of financial institutions. Additionally, whether you intend to buy a property for personal residence or investment purposes can influence the borrowing limit, considering variables like rental income and other add-backs.
1. Evaluate your financial position
Before embarking on a mortgage application, scrutinise your financial standing. Your broker will request details about your income, expenses, and existing debts. This includes:
- Income: Consider all sources, such as salary, bonuses, and commissions, as lenders factor these into their assessment
- Expenses: Compile a comprehensive list of monthly outlays, covering utilities, groceries, insurance, and other financial commitments
- Existing debts: Lenders weigh existing debts and debt-to-income ratio, including credit card limits, personal loans, HECS, and car loans, and
- Loan-to-value ratio (LVR): In Australia, LVR, representing the loan amount relative to the property’s value, significantly influences borrowing capacity. A lower LVR often leads to more favourable terms. For a deposit of less than 20 per cent, options such as lenders mortgage insurance (LMI) may be considered.
2. Estimate borrowing capacity
Many Australian lenders and brokers provide online borrowing power calculators based on income and expenses. While these offer initial insights, they don’t capture your complete situation.
Consulting with a broker is advised for a precise assessment, considering individual circumstances, loan amounts, and varying credit policies.
3. Consider credit history
Credit history is pivotal in mortgage approval. Lenders scrutinise your credit score and history to gauge creditworthiness.
A favourable credit score enhances loan eligibility and secures better interest rates. Prioritise reviewing and rectifying any credit report issues before applying for a mortgage.
4. Employment stability
Lenders favour consistent employment history and stability. A steady income from a reliable job is advantageous.
Self-employed individuals may need additional documentation proving income, business profitability, and trajectory.
5. Impact of interest rates and loan terms
Interest rates and loan terms affect borrowing capacity and overall mortgage cost.
Fluctuating interest rates can alter monthly repayments, and the choice between fixed and variable-rate mortgages influences borrowing limits.
6. Seek professional guidance
Navigating Australia’s intricate mortgage market requires expertise. Mortgage brokers, armed with up-to-date knowledge, can assist in finding the optimal mortgage product tailored to your needs. They guide you in understanding lender suitability, especially in complex situations.
If you want to book a time with your local finance broker, head to ufinancial.com.au