One of the first things to consider when thinking of buying a property is how much money you’ll be able to borrow.
The amount you can get for a loan will have a big impact on the kind of property you look at, as well as the suburbs you will take into consideration.
How much you can borrow for a home loan is determined by a number of different things that banks will take into consideration.
These are some considerations on what might determine how much you can borrow:
1. Income and expenses
Your income is a big factor when considering how you can afford to pay your monthly mortgage. Consider your living costs and financial liabilities to determine how much of your income is left to cover home loan repayments. Sound finances will give you the confidence that you are not over stretching yourself on additional payments.
2. Savings
Saving for a deposit is a one way to gain confidence from creditors that you’ll be able to pay a home loan. Three months or more is a good evidence of your saving power. The larger your deposit, the lesser your mortgage will be and the interest you will have to pay. The minimum required deposit can be as little as 5%, but ideally 20% if finances allow. There are other upfront costs outside the deposit, these include legal fees, stamp duty, moving costs and insurances. Ensure that you also take these into considerations when coming up with a savings plan.
3. Credit rating and liabilities
The creditor will also consider your credit rating, which is hinged on your borrowing and repayments history, including how often you’ve shopped around using credit. If you have credit cards, car loans and other personal debts, these will all affect your serviceability.
4. Kind and length of home loan
The kind of home loan and its accompanying interest rate will affect your borrowing capability. The lower the interest rate, the lower your minimum repayments will be. Stretching your loan repayment term longer might allow you to borrow more, but will increase the total amount of interest you will be paying by the end of the extended loan term.
5. The price of the property
As part of the home loan application, the creditor may do an appraisal of the property to determine how much they are willing to lend you.
We know finding out how much you can borrow may be the number one question on your mind right now before you head out and search for your dream home. If you would like to have an idea on how much you can borrow, please get in touch with us. Our service is free and we are more than willing to answer your questions and guide you through the process. You can reach out to us at 07 4317 4048 or send us an email at info@mortgagealley.com.au