If you contact a mortgage broker because you are looking to buy a home in Kwinana, for example, the broker is going to ask you some financial questions. Even the basic information can seem like a lot to some people, but it is important that we gauge your borrowing power. So, what is borrowing power? It’s the amount of money that a lender is willing provide for you on a home mortgage.

When a lender assesses your situation to determine whether or not they will provide a loan for you, they must be convinced that two important requirements are met. You must have the funds for a down payment and you must show the ability to make mortgage repayments in the future. If you fail either of those “tests,” you will not obtain a loan.

If you meet both criteria, you are said to have enough “borrowing power” to obtain the loan. So, how is borrowing power calculated? The easy version is that they find out how much money you make and compare it to your outstanding obligations including what the monthly payment would be. Here’s the slightly longer version.

Borrowing Power Determinants

Income: This includes work, revenue from rental properties and revenue from investments.

Family Size: This helps the lender estimate how much it costs you per month to live.

Credit Card Limits: Often, we recommend calling your credit card company and getting your limit lowered. It’s good to have credit, but a $10,000 limit can count as another potential $10,000 of high interest debt.

Other Loans: Your repayments on car loans, personal loans, credit cards and other mortgages all count here.

Improving Borrowing Power

If you can’t obtain a loan, two things will help you immensely. Start a savings account, lower your credit card limits and pay off credit cards and other loans—highest interest first.

If you are thinking of buying a home and need a home loan, call Smartline Rockingham today: (08) 9527 1800.