How to Increase Your Borrowing Capacity
Many steps can be taken to ensure you will maximise your borrowing capacity come time you are looking to be in the market for a home loan and property purchase, if you talk to a mortgage broker they will be able to assess your current position and provide advice around it. However there are some things you can do to help yourself and ensure you are in the best possible position moving forward.
Pay out bad debts such as Personal Loan, Car Loan, Credit Card, HECS/HELP Debt:
If you have any form of personal loan, car loan, credit card debt or HELP/HECS debts in place, in many cases all these things if you have all or some will actually work against your greater term potential with lenders which would otherwise be suitable for your situation.
If you have two credit cards and they both have five thousand dollar limits on them but you are not actively using them this will actually lower your borrowing capacity with the lenders then if you were to cancel/finalise the cards. The reason for that is the Banks look at the debt being fully drawn as there is nothing stopping you from maxing out the card limit the day after your loan is approved.
Many people once they have a HELP/HECS debt will generally only repay the minimum amount each pay cycle. This could be far more beneficial to you if you repaid a higher amount back each pay cycle knocking months or years off the total amount owing. Or if the amount owing is low enough and you have enough cash funds you could pay it out and actually increase your borrowing capacity at the same time as opposed to keeping the debt there hanging around in the background.
It is best to work out the worst of your bad debts and have an action plan in place to pay out the debt owing. For instance with any credit cards you are in the process of paying out, once the balance reaches zero to call up the financial institution and finalise the card before you get the urge to run the debt up again. The benefit gained from paying out and finalising your debts one by one is far greater worth and in some cases worth more than the purchases you will make using the credit card.
If your income is a bit low for what you wish to achieve, and your finance broker has told you this it is highly recommended that if your workplace permits overtime payable in addition to your base hours to chase up some extra hours or even put your hand up for extra shifts, this could mean you might do some split shifts but if this option is available it will help you to be able to achieve and prove to the lender your YTD income is quite strong. Another thing to consider is to look for alternate employment or even take up a second job – but don’t run yourself into the ground by working illegally and doing too many hours in a day.
Things to avoid:
Some things to avoid when considering your borrowing capacity and taking into consideration options to better your finance position other than the things spoken about above are vehicle leases or salary sacrifice options for other assets where this option is available. If you are currently salary sacrificing to your Super fund or have another form of salary sacrifice in place, it’s not the end of the world providing it can be cancelled at any given time. That is fine as we have something to work with should the option need to be utilised.
If you are unsure about whether your current debts in place are holding you back or you have a question regarding ways to look at eliminating any of your bad debt, click here to talk to your finance broker Gerry as he will be able to assist with answering any questions.