How much you can afford is influenced by how much you earn
No matter where you choose to go to take out a home loan, the amount you will be approved for will inevitably be determined by how much you earn. Lenders look at your income and expenses to determine how much you can borrow to ensure that you will be able to meet your mortgage repayments. To work out how much you can borrow you can draw up a list of your income and expenses, along with ongoing repayments for your debt and credit card.
Checking your credit report and your credit score
Your credit report and credit score are two of the most important things that lenders look at to determine your credibility in taking out a home loan. Your credit report is based on your history of paying back your loans and bills on time, if you have defaulted on payments, have debt, or have been declared bankrupt. Checking your credit report for any errors or arrears and fixing these can improve your borrowing power.
Make use of a loan calculator
Already have a potential amount you wish to borrow but not sure how much it will cost you in repayments? Using a loan calculator is a good way in which borrowers can find out whether they will be able to afford a loan or not. Loan calculators let you fine-tune the details of a mortgage to see if the amount you want to borrow will be suitable for you. You can input details such as:
- Term of the loan
- Interest rate
- Your gross income
- Untaxed income
- Expenses (other expenses)
- Car loan repayments
- Your credit card limit
- Number of dependents
The interest rate
Your home loan interest rate will play a major factor when it comes to meeting your monthly repayments. It is vital that borrowers compare home loans based on the interest rate and comparison rate to see whether it is affordable or not. Keep in mind that the lower the interest rate the more affordable the loan will be for you. It could also act as a buffer for when the interest rate rises.
Saving up for a deposit
Having a deposit saved up can be one of the best things a borrower can do. It can possibly help you in terms of your borrowing power when it comes to your loan. Keep in mind that if you borrow more than 80% of the value of the house you could be subject to lenders mortgage insurance (LMI). LMI basically protects the lender from instances where you are unable to meet your loan obligations. Your deposit can also help to cover expenses such as stamp duty and conveyancer fees that come with it.