Posts Tagged ‘borrowing capacity’

Plan your New Year property purchase

Posted on Tuesday January 3rd, 2012 by Mortgage Choice
Tags: , , , , , ,
Posted in Home Loans, Top tips for property & home loans | No Comments »
Plan your property purchase by speaking to a home loan specialist

Start planning your New Year property purchase

If owing a property is on your checklist for 2012, now’s a good time to start planning. As with any major purchase, the more research and preparation you do, the better chance you have of buying something that’s right for you.

Know your limits
Before setting off to find your dream property, it’s best to get an idea of how much you can afford to borrow and repay – so that you can be realistic in your search and not waste time on properties that could potentially be out of your reach.

There are plenty of online calculators that can help work out your borrowing capacity and repayments. However do keep in mind they provide an estimate only, so be conservative and leave yourself some financial buffers when using these tools. Remember to factor in other expenses as well, such as stamp duties and legal fees which could make a sizable dent in your deposit.

Be thorough when doing the property inspection
Attending open homes can be a hectic and stressful experience. Once you’ve managed to navigate to the six different properties (that all decided to open within the same 2-hour period on a Saturday morning), you then have about 10 minutes to look around before rushing off to your next destination. Amidst the chaos you might have overlooked some flaws or forgotton to check certain features, which could mean a second visit if you’re really keen on the place – provided it doesn’t get sold before that.

This is when it helps to have a property inspection checklist in hand, to make sure you look out for important features and flaws (e.g. smoke alarms, crakes / stains, fans / air conditioning etc); as well as to prompt yourself to ask the agent for some critical information about the property which may not be included in the brochure (e.g. rent and lease expiry date (if applicable), rates, security, insulation etc).

Shop around for the best home loan deal
There are many factors to consider when choosing a home loan. For example your borrowing limit may vary significantly between lenders which could be the difference between getting your dream home or settling for something less; also, some loans may have great interest rates but the features offered by another loan with higher rates might end up saving you more in the long run.

While it’s important to shop around, it’s also critical that you know what to look out for. Consulting a home loan specialist such as a mortgage broker is a stress-free (and cost-free) way to go about this.

Get your home loan pre-approved
A loan pre-approval provides a conditional approval of a loan amount, which can help you shop with confidence when negotiating on a property purchase or bidding at auctions.

Genuine loan pre-approvals follow a similar process to a full loan application whereby borrowers will be assessed on their individual circumstances and needs and are required to verify their identity and ability to repay the loan. Other conditions usually need to be met to move to full finance approval, such as a suitable property valuation.

Keep in mind loan pre-approval is usually a limited time offer, for a period of three to six months.

Here are 5 benefits of a home loan pre-approval:

  1. It prompts you to begin thoroughly exploring your loan options at the beginning of the property purchase process.
  2. Saves time (and lessens possible disappointment) by concentrating the property search in a feasible price range.
  3. Enables real estate/buyers agents to see you as a serious property buyer.
  4. Helps you gain confidence for bidding at auction or negotiating a purchase.
  5. Quickens the settlement process as the loan is already part of the way approved.

Useful links

How much can I borrow?

Posted on Tuesday June 28th, 2011 by Mortgage Choice
Tags: , , , ,
Posted in Home Loans | No Comments »

Arthur Ways

Arthur Ways

By Arthur Ways, Mortgage Choice in Beenleigh

Asking the right question

I often get asked ‘how much can I borrow’ by customers looking to buy property. There’s a better question they should be asking. That is ‘what is the most suitable loan for me’. When your home loan application is being processed, there are many factors that will be taken into consideration when a lender decides your borrowing capacity. Some factors are less obvious than others.

Factors affecting how much you can borrow

Your borrowing capacity can be determined by factors including:

  • Your income
  • Existing debts (personal loans, credit cards, store cards)
  • Whether you’re buying with someone or on your own
  • Any other liabilities you may have, such as dependents

Importance of serviceability and deposit

I frequently encounter customers who think that because they have assets they can borrow more. You could have $1 million worth of property, but if you can’t show evidence that you can service that debt, it’s highly unlikely that any financial institution will lend to you. Stricter lending criteria introduced following the global financial crisis means lenders closely scrutinise your ability to repay a loan.

As a broker sourcing a loan for you, I take care to ensure that you can comfortably afford your loan repayments.

The amount a lender will loan you can vary, but one element is key – regardless of whether you’re a first home buyer or a subsequent buyer, you will need a healthy deposit and to show evidence that you can comfortably service the loan.

Next steps

These days, a typical loan deposit is a minimum of 5% plus costs (such as solicitor’s fees, bank fees and Government fees). If you’re refinancing an existing loan, you can generally borrow 90% plus costs. In selected circumstances, you may be able to borrow up to 95% of the property value plus costs.

The next step is to organise your paperwork and gather evidence of income (payslips, group certificates, tax returns), your most recent bank statements and evidence of other income (like shares or rent) and make an appointment with your local Mortgage Choice broker who can give you the bigger picture.

Helpful links

  • Get money smart and read the basics of borrowing.
  • Try the Mortgage Choice home loan calculator to get an idea of what you could borrow.

How much can you borrow?

Posted on Monday February 21st, 2011 by Wayne Jones
Tags: , , , , , ,
Posted in Home Loans | No Comments »
Wayne Jones

Wayne Jones

By Wayne Jones Mortgage Choice in Brisbane North, Queensland

Small change make big impact in home loan search

Making basic lifestyle changes can help people get their first home loan – and an amount that they can comfortably repay.

During the home loan hunt, the question on many first homebuyers’ lips is “how much can I borrow”. Some potential borrowers are quite surprised to discover that their credit card debts, other personal debts and savings strategies may affect their borrowing capacity.

When applying for a home loan, the lending institution almost always takes your credit card limit into account, even if your card is paid off in full each month. It’s generally not a question of how much you owe on credit cards – it can be the credit limits a borrower has. Generally, lenders don’t like to see too many credit cards, as it implies a lifestyle supported by credit.

How debt can affect borrowing capacity

Broadly speaking, every $1 of personal debt will reduce a person’s borrowing capacity by $5.
For example, someone with a $10,000 credit card limit and a $10,000 personal car loan may find their borrowing capacity is reduced by almost $100,000.

I usually recommend to people wanting to maximise their borrowing capacity to get rid of, or at least reduce, their credit limit on credit cards.

Deposit sizes and borrowing capacity

The size of your deposit is another factor that could limit your ability to borrow. While some lenders accept a 5% deposit, it’s becoming more common for lenders to require 10%.

If you haven’t saved enough for a deposit, asking a parent to become a guarantor for your home loan is another option to consider. I usually find that younger borrowers return from travelling; secure a well-paid job, only to find they still can’t get a loan. Many haven’t started a savings strategy.

How employment types may affect borrowing capacity

The nature of your employment can impact borrowing capacity, too. Permanent part-time employment tends to be viewed more favourably than casual work, despite casual work often paying a higher rate.

Self-employed people may be eligible for what’s known as a ‘low doc’ loan. These loans are suited to people who may find it difficult to provide common documentation (such as regular pay slips or tax returns) to validate their income and savings.

Top tips to help you prepare for a home loan

It’s a good idea to review your credit history. You can visit the Australian Securities and Investments Commission (ASIC) website for more information.

Get to work on building genuine savings. Having genuine savings is critical to getting a home loan. If you have plans to sell a car, or other items, so you can put the money towards your first home, I encourage people to do it sooner rather than later. Get your cash in the bank.
You need to show evidence of savings over a 3-month period.

Be consistent with your savings strategy

Put aside a regular amount each week or fortnight/month rather than making ad-hoc savings. A regular savings pattern certainly augurs well for that first loan.

 

If you need help with preparing for your first home loan, feel free to give Mortgage Choice a call on 13 MORTGAGE, or fill out a form on our website and we’ll contact you.

Are you hunting for your first property? What challenges have you faced when saving for your first home? Tell us about your experiences.

 

Useful links

Find out more about getting a home loan by reading our home loan fact sheets.
Keen to discover how much you can borrow? Try our home loan calculators.