How to increase your borrowing capacity


Maximising your borrowing capacity does not mean taking on unmanageable levels of debt. However, by making a few smart steps, you may be able to purchase the home of your dreams, rather than the ‘fixer-upper’.

Shop around for lenders

Each lender has their own lending appetite, and therefore different banks will define income differently. For example, one bank may accept share dividends as income, while another lender may not. This is where it pays to use a finance broker as they know what forms of income will be accepted by each bank.

Shop around for the right mortgage

Your borrowing capacity will most likely vary between different lenders. A product such as a line of credit may reduce the amount you can borrow. A finance broker will aid in finding the right fit for your individual needs and circumstances.

Update your financial records

It is important to keep your PAYG tax return as up to date as possible. Most lenders will ask you to provide two most recent payslips, however, an up to date tax return gives a better historical view of your income.

Check your credit rating

There are three national credit reporting industries, which are Dun & Bradstreet, Veda and Experian. It might be a good idea to check your credit rating before applying for a home loan. This will demonstrate how healthy your credit rating is. It may appear that your rating is not as healthy as you thought it would be, this could be due to the changes to the Privacy Act from 12 March 2014. You can read more about your credit report here

Roll your debts into your mortgage

Unsecured debts can cut the amount you can repay on a home loan as these loans have high monthly repayments. Therefore, if you have any personal loan or credit card debt, it may be a good idea to consider rolling these debts into your mortgage.

Reduce debt and credit limits

Credit card limits will affect your borrowing capacity, even if the funds have not been spent. Therefore, if you have credit cards that you are not using it is a good idea to cancel them, this includes and other cards such as department store cards. Your borrowing capacity reduces with every $1000 on a credit limit, whether the limit has been reached or not.

Investigate family pledges

A guarantor or family pledge may help you get into the property market sooner. A guarantee allows for the equity in the guarantor’s property to be used as security for their child’s loan.

Save more of the deposit

Ultimately, lenders want to see at least six months worth of genuine savings. When you’re saving to purchase a property, you may want to consider cutting out those extra coffees or taking your lunch to work, every little bit counts.