Boosting your borrowing power for your first home

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First home buyer, Understanding home loans

Welcome to the exciting journey of purchasing your first home! At The Happy Finance Company, we understand that navigating the world of mortgages can seem daunting, but we're here to make it as simple and stress-free as possible for you. One of the key steps in this process is understanding and maximizing your borrowing power. Let's dive into how you can boost it to secure your dream home.

What is borrowing power?

Your borrowing power is essentially the amount a lender is willing to loan you for your mortgage. The higher your borrowing power, the more confident lenders are in your ability to repay a larger home loan. Factors such as minimal debt, a substantial deposit, reasonable living expenses, and stable employment contribute to a higher borrowing power.

WONDERING HOW MUCH YOU COULD BORROW?

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Why is it important?

Knowing your borrowing power is crucial for several reasons. Firstly, it saves you valuable time by focusing your search on properties within your budget. Additionally, understanding your borrowing power gives you insight into potential mortgage repayments, including interest rates. For lenders, your borrowing power serves as a measure of risk and your capacity to service a loan.

Several factors influence your borrowing capacity:

Income: Your primary source of earnings.
Assets: Including savings and investments.
Credit score: Reflecting your creditworthiness.
Debt: The amount you owe.
Lifestyle expenses: Your day-to-day living costs.
Deposit size: A larger deposit can enhance borrowing power.
Property value: The cost of the home you're eyeing.
Loan details: Such as type, term, and interest rate.
Other considerations: Such as buying with a partner or employment stability.

Ways to improve your borrowing power

Enhancing your borrowing capacity involves considering a range of strategies, including governmental support and the possibility of a guarantor:

Investigate Australian Government Guarantee Schemes: Look into programs such as the First Home Guarantee, Regional Home Guarantee, and Family Home Guarantee. These initiatives are designed to aid eligible first-time homebuyers, especially those in regions facing housing affordability issues.

Consider the use of a guarantor: Enlisting the support of a family member as a guarantor can be beneficial. It may enable you to secure a larger loan amount with a smaller deposit, enhancing your borrowing power.

Beyond these methods, here are additional strategies to boost your borrowing capacity:

Reduce existing debts: Aim to pay off as much existing debt as possible, including personal loans and credit card balances. This action can increase the funds available for your mortgage.

Document all income sources: Ensure you provide proof of all your income streams, such as rental earnings and government benefits, to demonstrate your full financial capability.

Enhance your credit score: A favorable credit history, achieved by consistently paying bills on time and minimizing new credit inquiries, can be advantageous.

Minimize unnecessary expenditures: By reducing non-essential spending, you can showcase prudent financial management to lenders.

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Establish a savings routine: Demonstrating a steady savings habit indicates financial stability and responsibility, appealing traits to lenders.

Adjust credit card limits downwards: Lower credit card limits can lead to a perceived reduction in potential debt, positively affecting your borrowing capacity.

Secure steady employment: A consistent employment history suggests a stable income source, making you a more attractive candidate to lenders.

Select your lender carefully: Conduct thorough research to identify a lender that best suits your specific circumstances, particularly if you are self-employed.

Amass a substantial deposit: Saving a larger deposit not only reduces the total amount you need to borrow but also enhances your borrowing power.

What could your home loan repayments look like?

Ready to explore your financing options?

At The Happy Finance Company, we're dedicated to guiding you through the complexities of the mortgage landscape. Our team of seasoned brokers excels in assisting first-time homebuyers in navigating the market with ease. Book a meeting with to discuss your options and start your homebuying journey with confidence.