Five tips to boost your borrowing power
LEARNING to successfully navigate the property loan application process is essential for property investors and first home buyers alike.
But as Kevin Young says, "Banks won't tell you how."
As the President of Australia's leading property advisory group, The Investors Club, Kevin works to protect buyers' rights during the property buying and loan negotiation process.
"While banks are quick to let you know when you don't qualify for a loan or can't borrow what you want, when it comes to providing guidance on improving your borrowing capacity, they often don't tell you how. But with the right advice you can increase your capacity to borrow both immediately and over time," he said.
And now is the time to seek advice.
Kevin said the state of play in the Australian property market has created the ideal conditions for property purchase.
"Current market forces point to buyers holding the upper hand when it comes to purchasing a home," he said.
"There is plenty of stock to choose from and not a great deal of competition, which means prices remain soft. But only those buyers that have the know-how to successfully manage their loan application will be ahead of the pack.
"Always seek professional advice from an advisory group that have your interests as their priority to put you in best possible borrowing position to capitalise on the current property market."
Kevin's five top tips to help you to identify some key areas which can have a positive effect on your borrowing capacity:
Credit Cards: For every $10,000 credit card limit, you decrease your borrowing capacity by approximately $40,000. If you have multiple cards, either consider consolidating or cancelling as many as you can.
You can also reduce the limits on each card. This is important as banks consider your total credit limit as a liability, not the amount you have spent.
Loans: Recurring debts, including interest-free loans, reduce your ability to service your mortgage account.
The effect of just $100 as any recurring monthly loan repayment for any type of loan - personal, car or store - is around $15,000 in lost borrowing capacity.
Rent: If you're a property investor and rent, you need to be aware that if your name is on a lease, the bank considers the whole lease amount as a liability in your loan application, irrespective of your share.
If, however, you can enter into a boarding agreement, leaving your name off the lease, you increase your borrowing capacity. For example, replacing $300 per week in rent with $100 per week in board has the potential to increase your borrowing power by $150,000.
Wages: If you're in the right situation, ask the boss for a raise or increase your income via sales commissions.
Even a modest increase in salary of $10,000 could increase your capacity to borrow by $90,000.
Families: If you have children, your financial capacity to support them is factored into your loan application.
As a general guideline, banks consider each dependent child to reduce borrowing power by around $60,000.
Ongoing child care costs are also considered like any other recurring debt, with each $100 reducing your borrowing power by $15,000.