How Do I Increase My Borrowing Capacity ?

Are you looking to purchase a new home or increase your borrowing capacity? If so, you’ll need to understand the factors that go into determining how much you can borrow. As an Australian mortgage broker, I have the expertise to help you understand how to increase your borrowing capacity and maximize the amount of money you can borrow. In this blog post, I will discuss the key factors that go into calculating your borrowing capacity, such as income, expenses, and credit score. I will also provide some tips on how to improve your borrowing capacity and maximize your loan amount. So, if you’re looking to purchase a home or increase your borrowing capacity, this blog post is for you!

Calculate Your Net Income

Calculating your net income is an important step in determining your borrowing capacity. The net income is the amount of money you have left after all deductions have been made from your gross income. It is the money you have to pay for your mortgage, other debts, and everyday living expenses.

The most important factor to consider when calculating your net income is the type of deductions that you are eligible for.

If you are an employee, your employer will make deductions from your salary, such as superannuation contributions, income tax and Medicare Levy.

If you’re self-employed, you’ll need to consider deductions for expenses you incur in running your business, such as office rental, advertising and equipment purchases.

You should also consider any deductions you may be eligible for as an individual. These could include deductions for personal expenses, such as charitable donations or education costs. You may also be eligible for deductions related to your family, such as childcare costs or alimony payments.

Once you’ve identified the deductions that apply to you, it’s important to add them up to get an accurate picture of your net income. This will help you to determine how much you can realistically afford to spend on a mortgage each month.

When calculating your net income, it’s also important to consider any additional income you may have, such as rental income or income from investments. This additional income can help to increase your borrowing capacity, as it can be used to supplement your regular income.

By taking the time to calculate your net income accurately, you can get a better idea of how much you can realistically afford to borrow. This will help you to make an informed decision about whether you can afford to take on a mortgage and how much you should realistically be spending each month.

Understand Your Expenses

When it comes to increasing your borrowing capacity, understanding your expenses is key. Knowing how much money you need to live your life and what kind of lifestyle you would like to live is an important part of the equation.

To get an accurate picture of your expenses, you should start by gathering together all your bills and bank statements. This should include all your regular expenses such as rent or mortgage payments, groceries, utilities, transport, credit card and loan repayments, and any other regular payments. Once you have all this information, you can start to determine your spending patterns and identify any areas where you can reduce or manage your expenses better.

You should also look at any irregular expenses that come up, such as medical bills, car repairs, travel or childcare, to get a better idea of how much you'll need to cover these expenses when they come up. This can help you budget and plan for these expenses, so that you're not caught out when they come up.

It's also important to factor in unexpected expenses, like if you lose your job or if you need to take unpaid time off work due to illness. Having a financial safety net in place, such as an emergency fund, can help you cover these costs without impacting your borrowing capacity.

Finally, it's important to look at your income and expenditure over time. This can help you plan for large expenses, such as a home renovation or a car purchase, and budget for any changes in your lifestyle that may affect your borrowing capacity.

By understanding your expenses, you'll be able to make more informed decisions about how much you can afford to borrow and how to manage your finances to ensure you're not stretching yourself too thin.

Improve Your Credit Score

Improving your credit score is one of the most important steps you can take to increase your borrowing capacity. A good credit score is essential to getting approved for a loan and getting the best interest rates.

One of the best things you can do to improve your credit score is to make sure you pay all of your bills on time. Late payments are reported to the credit bureaus and can lower your score. It's also important to keep the amount of debt you owe at a reasonable level. Paying off debt can help to improve your score.

Another way to improve your credit score is to make sure your credit report is accurate. Sometimes, errors can appear on your credit report. It's important to check your credit report regularly and to dispute any errors that may appear. This can help to protect your credit score.

Finally, it's important to remember that it takes time to improve your credit score. It may take several months of making payments on time and paying off debt before you see an improvement in your score. The important thing is to be patient and consistent in your efforts.

Improving your credit score can be a lengthy process, but it can be well worth the effort. Taking the time to improve your credit score can help you to get approved for a loan and get the best interest rates, so it's definitely worth the effort.

Consider Purchasing an Investment Property

When considering how to increase one’s borrowing capacity, purchasing an investment property is an option that should be seriously considered. Investment properties can be a great way to grow wealth and provide a steady income. However, it is important to be aware of the associated risks and costs.

When considering an investment property purchase, it is important to assess the potential return on investment (ROI) and ensure that the costs associated with the purchase, such as stamp duty, interest on the loan, and ongoing maintenance costs, are factored in. It is also important to research the local market and assess the potential for capital growth.

It is also important to consider the impact an investment property may have on one’s borrowing capacity. Generally speaking, lenders will take the rental income generated from an investment property into consideration when assessing the total borrowing capacity of an individual. This means that an individual with an investment property may be able to borrow more than someone without.

Finally, it is also important to consider any tax implications associated with owning an investment property. It is advisable to seek professional advice from a qualified tax specialist to ensure that all relevant tax rules are understood and followed.

In conclusion, purchasing an investment property is a viable option for increasing one’s borrowing capacity. However, it is important to do the necessary research and seek professional advice to ensure an informed decision is made.

Got questions about your home loan? Let's talk

The key to increasing your borrowing capacity is to have a clear understanding of your financial situation and make informed decisions about how you manage your finances. Working with a qualified mortgage broker, such as Ello Lending, can be a great way to get advice and the right loan product for your individual needs. We understand that every borrower’s situation is different and would be more than happy to answer any questions you may have. So don’t hesitate to get in touch with us today and let us help you get the most out of your borrowing power.