How to Increase Your Borrowing Capacity

One of the first questions we hear from clients is, "How can I borrow more?"

While your income plays an important role, it's only one piece of the puzzle. Lenders look at your overall financial position to determine how much you can comfortably repay, which means there are often practical steps you can take to improve your borrowing capacity.

Here are five factors that can make a difference.

Reduce Existing Debts

Outstanding debts such as personal loans, car finance and Buy Now, Pay Later accounts can reduce the amount you're able to borrow. Closing these commitments before applying for a home loan may improve your borrowing capacity and strengthen your application.

If you can’t clear these debts, another way is to refinance for a lower repayment, but watch out as this may not affect your credit score if you do too many credit enquiries. 

Review Your Credit Card Limits

Even if you rarely use your credit card, lenders generally assess your borrowing based on the available credit limit rather than the balance owing.

For example, a credit card with a $15,000 limit can have a greater impact on your borrowing capacity than many people realise. Reducing unused limits or closing accounts you no longer need may help.

Understand How HECS Can Affect Your Loan

Having a HECS-HELP debt doesn't prevent you from getting a home loan, but it can affect your borrowing power.

Because HECS repayments are deducted from your income once you earn above the repayment threshold, lenders take these ongoing commitments into account when assessing how much you can afford to borrow.

However, depending on your HECs balance, some banks will ignore those them. 

Consider All Sources of Income

Depending on the lender, income from overtime, bonuses, rental properties or a second job may be included in your application. If you're applying with a partner, combining incomes can also increase your borrowing capacity.

Every lender has different policies, so it's important to understand which income sources can be used.

Speak to a Mortgage Broker Before You Apply

Increasing your borrowing capacity isn't always about earning more, it can be about structuring your finances in the right way before you submit an application.

At WestGen Finance, we take the time to understand your financial position and compare lenders to find a solution that suits your goals. If you're thinking about buying your first home, upgrading or investing, a conversation with a mortgage broker can help you understand what's possible before you start house hunting.