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Six factors that impact your borrowing power
Six factors that impact your borrowing power

Before you begin your home buying journey, it’s important to understand six factors that impact your borrowing power.

Updated over a week ago

Your borrowing power will help you determine the type of properties you can purchase, as well as the suburbs you can consider. Before you begin your home buying journey, it’s important to understand six factors that impact your borrowing power.

Your income

When it comes to determining your borrowing power, your monthly income is where lenders start. Your income will be used in your serviceability assessment to help calculate how much you can afford to repay on your home loan every month.

If you are buying a property with a co-borrower, your ability to repay your home loan may be greater, meaning you could borrow more money.

Learn more about what a serviceability assessment is here.

Your debts & expenses

Once your monthly income has been verified, your debts and expenses are used to determine your household expenditure. These factors will impact your ability to repay your home loan and include:

  • Debt includes existing mortgages, credit cards and loans.

  • Expenses include food & groceries, utilities & maintenance costs, transport expenses, health & fitness expenses and more.

If your household expenditure is high, this will impact your ability to borrow and how much you can borrow. Learn more about how your debt & expenses impact your serviceability assessment here.

Your credit score

It’s important to have a good credit score as this will play an important role in your borrowing power. A good credit score indicates to the lender that you’re likely to be aa reliable customer who has consistently made repayments on time.

If your credit history contains missed or late payments, this will impact your borrowing power and ability to receive approval on a home loan. Get access to a free credit score with Credit Savvy, and learn what factors are influencing your score.

Your saving history & deposit amount

Saving for a deposit is a way to show your lender that you can save money, over a long period of time. Lenders will look for at least three months or more of your savings to identify if you’re consistent.

A bigger deposit shows lenders that you have good savings and are potentially a low-risk borrower. The bigger your deposit, the lower your Loan to Value (LVR) will be and the smaller your loan will be – this means you’ll have to pay less interest.

Don’t forget to factor in any upfront costs when looking at your savings & deposit amount. Learn more about what you can expect here.

Your type & length of home loan

The type of loan (eg: Owner Occupier or Investment) and length of your loan (eg: 30 years) will impact your borrowing power.

Factors that increase your borrowing power

Factors that decreases your borrowing power

  • Higher interest rate

  • Ongoing fees

  • Shorter loan terms

The property you’re looking to purchase

As part of your application process, a property valuation will determine how much a lender is willing to lend. Want to learn how a property’s value is estimated? Find out more here.

Learn about ways to increase your borrowing power here.

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

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