Do You Know Your Borrowing Capacity?
You wouldn’t go to the grocery store without knowing how much you have to spend on food, why would you start looking for a home without knowing what your budget is?
When you feel ready to buy a home, you’ve already been saving. You’ve probably had a look online, and started to dream up exactly what you want and need for your dream home. It’s easy to get swept up in the excitement. And so you should! This is a big step.
But before you take the leap you need to know what your borrowing capacity. So, what are the banks looking for when you’re applying for a loan?
Income and Expenses
This is obvious. But in the current market, lenders are looking much harder at borrowers’ expenses by analysing credit card statements, transaction accounts and any recurring spending patterns.
As a lot of our salaries have been impacted by COVID-19, it’s better to make sure you’re spending wisely. Do you need all those streaming services?
Loan to Value Ratio
The Loan to Value Ratio (LVR) is the amount you’re borrowing as a percentage next to the property you’re purchasing. To calculate the LVR, divide the loan amount by the value of the property then multiply by 100 to get a percentage. Banks and financial institutions use this as a measure of whether you can secure the loan.
The easy one that we’ve known forever. Since our parents warned us as teens to not get credit cards, and to our stress of bills. This is all because we are worried that it will ruin our future homeowner dreams. The banks will definitely look at what you have owing and your history of repayments.
Where have you worked? For how long? Are you stable in your career? These are all things that will dictate how much you can borrow. The loaners need to be sure that you’re able to make the repayments and not default.
HECS/HELP/car loans. That degree you haven’t gotten around to finishing yet? The car sitting dormant in your garage? Unfortunately these things will contribute to how much you can borrow. But it’s no biggie, we all have a history and it won’t be the obstacle between you and the loan.
None of these will stop you from getting a loan, but they are what banks will look at. Don’t worry though, there are ways you can improve your borrowing capacity.
The best thing about going with Balfour Homes is that we tackle your finances for you. All the confusing jargon about money and loans is done. We look at what you have, what you can get, and what you can then go onto purchase. We’ll navigate this part — and you can get to the fun part… shopping!
Want to see what you qualify to borrow – enquire with Balfour today – https://balfourhomes.com.au/contact/