Determining your borrowing capacity
The amount you can afford to borrow is referred to as your 'borrowing capacity' and it is based on factors including:
- Your income – This is a key factor determining the amount you can afford to borrow. Your income needs to comfortably cover the likely repayments on your loan as well as the other costs associated with home ownership like repairs, insurance, council rates, and strata fees, while still leaving you money to live on
- Your other financial commitments - Lenders will also look at your current financial commitments to calculate what you can afford to pay. They'll take into account things like credit card, personal loan or car loan repayments plus HECS debt where applicable
How can a mortgage broker help?
A mortgage broker is able to give you a clear picture of your borrowing capacity before you start house hunting. And importantly, help to ensure your finance is sorted when you find your dream home. The earlier you meet with a broker, the more informed you'll be at an early stage of the moving process.
Develop your 'next home' budget
Don't base the budget for your next home only on the expected selling price of your current one - you might not get the price you want.
Your upgrading budget should also take into account the costs of selling your current home. This will shape the profit made on the sale, and therefore how much cash you can contribute to the overall purchase compared to how much you'll need to borrow.
Secure loan pre-approval
It can be heartbreaking to find the perfect place only to learn that you can’t afford it. Even worse is losing your deposit because you won at an auction but couldn’t secure finance for the balance of the purchase price. Don’t risk it.
With pre-approval you’ll know how much you can borrow and how much you can spend and you won’t waste time looking at places out of your price range. Your mortgage broker can help you with a home loan pre-approval before you start the hunt.