Understanding how lenders assess lending criteria could help improve your chances of success when it comes to a home loan application. Your borrowing power and borrowing capacity will depend on your income, family size, current debts and the type of loan you’re applying for. But did you know that there are a few simple steps you can take to improve your borrowing power? Take a look at what these are.
1. Reduce your debt
Regardless of the amount of debt you owe on any of your credit cards, your lender will assess your borrowing capacity based on your actual credit limit. So if you have a credit card with a $15,000 limit and only $2,000 debt, the lender will still consider the $15,000 as potential debt. And that could drastically reduce your borrowing capacity. It may be more sensible to either reduce your credit limit or give up your extra credit card.
2. Clean credit report
Maintaining a clean credit history is vital to improving your borrowing capacity. That means paying your bills on time and in full to prove to lenders that you’re a responsible borrower. Before applying for a loan, it’s worthwhile checking your credit history by requesting a credit report. You can get a free copy of your credit report online:
Dun and Bradstreet (allow 3 working days)
Centrix (allow 5-10 working days)
Veda (allow 20 working days)
Once you receive your credit report, check it carefully for any inconsistencies or errors and request to have any fixed.
3. Consolidate your debt
Having lots of smaller debts on your file can have a negative impact on your borrowing capacity so it may be more sensible to consolidate your debt into a single loan. Consolidating your debt into one loan can help streamline your payments and help you budget better. Furthermore, refinancing at a better rate could actually save you a significant amount of money over the life of your loan. Talk to one of our team about a debt consolidation loan.
4. Income versus expenses
Not only is the amount you earn important when it comes to assessing borrowing capacity, but how much you spend each month is equally relevant. Before filing a home loan application, calculate your living expenses taking into account all of the expenses you pay each month: school fees, utilities, insurances, even your gym membership – anything that the lender will take into account when determining your repayment capacity and your borrowing capacity. Consider cutting back on any unnecessary expenses to reduce your overall expenses and improve your borrowing capacity.
5. Grow your savings
If you’re a first home buyer, most lenders will want to see that you have genuine savings to contribute towards your deposit. Don’t forget to factor in KiwiSaver HomeStart or KiwiSaver Withdrawal if you’re eligible for either of these initiatives as they could provide a sizeable boost to your savings and help supplement your deposit.
For more tips and advice on improving your borrowing capacity, buying your first home, or using the equity in your existing property to grow your property portfolio, get in touch with a Mortgage Express adviser. Complete this form and one of our advisers will be in touch directly.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.
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