Can you improve your borrowing power? The seven key factors when applying for a loan

Queensland first homebuyers have more affordable property to choose from but they still need to have their financial ducks in a row when applying for a home loan.

So, with lending restrictions still in play, how do homebuyers of any description improve their borrowing power.

Mortgage Choice CEO John Flavell said would-be buyers must understand the seven key factors that can affect their borrowing capacity.

“These factors include a person’s income and commitments; their regular living expenses; their credit history; their property deposit; the type, term and interest rate of their home loan; their assets; and the value of the property they wish to buy,” he said.

One of the most simple ways that first-time buyers can improve their borrowing power was to grow their property deposit, he said.

He said potential borrowers should also assess their credit history, as well as their own financial situation, to ascertain whether any changes could be made to improve their position.

“For example, by drafting a detailed budget, a borrower may realise where they may be able to reduce their regular living expenses,” he said.

“The less they spend on living, the more money they will have to put towards their deposit and, in turn, the more money they may be able to borrow.”

Metropole Brisbane director Shannon Davis said a clean credit history was imperative as well a solid rental ledger or a genuine savings record if still living at home.

Stability of employment as well as living arrangements were also factors that the banks used to assess a home loan application, he said.

“Get rid of credit cards you don’t use – even if they are paid off monthly they are impacting your borrowing power,” he said.

“Reverse engineer the borrowings so you can show the capacity to achieve the repayments.

“Even consider principal and interest repayments for a while as a borrower keen to repay is more favourable in the eyes of a bank.”

Mr Flavell said potential borrowers must reflect on their financial history, including any missed debt payments or overdrawn credit cards, which can negatively impact borrowing power before they apply for a loan.

“As such, all borrowers should make sure they take a proactive approach towards their finances and debt obligations long before they apply for a home loan,” he said.

“The more responsible they appear to a lender – by meeting all of their debt obligations on an ongoing basis – the more likely they will be to improve their borrowing capacity.”

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