The Six Surprising Factors That Affect your Capacity to Borrow
Most people understand that the amount a lender will let you to borrow is affected by factors such as your income, current debts and how many dependents you have. All pretty standard, common sense stuff. But as lending restrictions have progressively tightened, and bank policies toughened there are several areas that are tripping up potential borrowers when it comes their maximum loan amount they qualify for.
Here are the things that surprise applicants the most when it come to what limits their capacity to borrow.
Its all about the Limit when it Comes the Credit Cards
Its not uncommon for applicants to regard their credit card debt in terms of the balance not the limit, but that’s not how the lender views it. All credit cards and their limits are to be declared, even those with a zero balance as they still are a credit facility that is readily accessible. When assessing your loan application, most lenders will take three percent of the card limit to work out your monthly payment.
Using After Pay or Zip Pay
The increased use of “buy now and pay later “facilities is an added convenience when shopping online or in store. However, although they are not conventional credit facilities they still are viewed as a liability so your conduct will be scrutinised. Any late or missed payments could have a negative impact on a loan application and your repayment amounts will be factored into your cost of living.
You Need to Get Real with Your Living Expenses
Gone are the days when you can nominate an arbitrary amount for your declared living expenses on a loan application. Lenders will go through all your statements with a fine-tooth comb to reconcile what they believe to be an applicant’s average monthly living expense. Any direct debits, subscriptions and regular payments will be factored in and they will question or even rebuke figures stated by the applicant if they do not fall in line with what’s evidenced on provided documentation.
Debts with Other Parties.
If you hold property with another person and there are debts attached, these will be factored into your current position. Some lenders may assign the entire debt for the property to the new applicant. Just because you hold debts outside your current household, they are still relevant to your circumstance on a new application.
Lending restrictions in recent years have seen a spotlight shone on the age of an applicant and their projected working life. Lenders now are needing applicants to verify when they plan to retire no matter what their age at the time of submission. When a borrower is approaching the middle age years a standard 30-year loan term is likely to be unacceptable unless a suitable “exit strategy” has been disclosed, otherwise a reduced term could be required which in term could equate to a reduced loan amount.
Your Credit Score.
Your Credit score is a numerical representation of your credit history, with the higher the number the better. If you have a black mark on your file from tardy conduct or multiple credit enquiries this may impact your access to credit or the amount you are able to borrow. That’s why its always good to know how your credit score looks particularly when you are seeking a new finance application.
Taking out a home loan has become increasingly tougher in recent years with many factors affecting an applicant’s capacity to borrow. It’s now more than ever prudent to partner with an experienced broker who can help overcome potential barriers and find a suitable solution. For more information or to find out your own borrowing capacity contact us today.