7 Key Ways to Enhance Your Borrowing Capacity
Ever thought about what happens if you found your perfect property, looked at the price, only to realize that you are coming short on your borrowing capacity? Sounds disheartening, right?
After all, borrowing capacity is often considered a key factor when buying a home. Your borrowing capacity affects how much you can spend off on a property, thereafter, determining your home loan.
While you should never opt to borrow anything more than you can realistically afford to repay, you can always take some sensible steps to strengthen your position and enhance your borrowing capacity a little more.
1. Keep Track of your Credit Score
When you are applying for a mortgage, your lender checks for your credit score. Your credit score determines if your financial situation is healthy or not. Clean credit history makes you a responsible borrower in the eyes of your potential lender and, in turn, improves your chance of approval while enhancing your borrowing capacity. With a clear credit report, you even qualify with more lenders.
2. Repay your Debts
Reduce your unsecured debts or if you have multiple debts in a file, process for debt consolidation i.e roll them into one. Unsecured debts such as credit cards and personal loans often have a higher interest rate. These loans are expensive and can even severely affect your repayment on the mortgage. In order to boost your borrowing capacity, reduce these unsecured debts that come with expensive monthly repayments and short repayment terms.
3. Minimize your Credit Limit
When calculating your borrowing capacity, the lenders take your credit card into account. Regardless of the card being used or not, your credit card limit is taken in debt against you. If you have any unused credit cards, it is best to get rid of them. As for the credit cards that you use, you can reduce the credit limit.
4. Narrow down your Expenses and Save more
Saving more and narrowing down your expenses automatically shows a clean and consistent saving record. Trimming down on your expenses will lead you to save up some extra cash. This will help you to have a bigger deposit and increase your borrowing power. A consistent saving record gives the lenders the impression that you can make regular mortgage repayments.
5. Consider Splitting liabilities with your partner
If you have someone you can split your expenses with, it is always better to consider splitting your liabilities. Instead of buying the property solely on your name, you can split these expenses with your partner.
However, do not go around being a guarantor for family or friends on their loan. Most lenders perceive you as jointly or severally liable for their entire debt, in turn decreasing your borrowing capacity.
6. Be realistic
One thing to keep in mind when applying for a home loan is to be realistic. No one knows your financial situation better than you, which is why regardless of what a lender says of your borrowing capacity, never borrow what you can’t afford.
Yes, having more borrowing capacity might land you with your dream property, but if you cannot afford to repay it, you might land yourself in a more disastrous financial situation. Hence, set a realistic borrowing limit.
7. Review your Borrowing Capacity with Multiple Lenders
Borrowing capacity often differs from lenders to lenders. Each lender calculates the borrowing capacity following its specific criteria. You can look at multiple lenders and have your borrowing power calculated. Don’t forget that these figures are estimates only.
You can have your borrowing capacity reviewed but do not apply with multiple lenders. Looking around for the best deal might fire back, and you could end up with several credit inquiries on your credit report. Aim to submit one application to the lender you wish to go for.
Use a Broker
While you can always consider the above-mentioned tips to enhance your borrowing capacity, having an experienced mortgage broker by your side is always a plus point. Having a mortgage broker to review and organize your application decreases the chance of a failed application. Of course, you can always apply on your own, but having a broker gives you a slight edge, especially when you are trying to borrow a little bit more.
The team of experienced mortgage brokers at Capkon is always there to guide you through. To book a free consultation session with one of our brokers, please CHOOSE the time that suits you the best.