Home loans come in different packages and can also be tailored. “How much can I borrow?” is a common question asked by many investors, no matter how experienced they may be.
We asked the Bank of Queensland for some tips:
What do I need to establish borrowing power?
Different lenders have different criteria when assessing your borrowing power, but in general they will need to know the following:1. Loan applicant details
• Personal identification
• Single or joint application
• Number of dependents
2. Financials
• Gross salary
• Rental income
• Level of savings
3. Expenses
• Living expenses
• Other loan repayments
• Other commitments
• Credit card limits
4. Other
• Any assets owned and any liabilities you may have
• Any previous declined loan applications
Which are the best tools for the job?
There are different approaches and policies that a lender may offer you in your individual circumstances. The assessment process for each lender will differ.Online Tools
Online tools are an easy tool offered by banks to give you an idea of what you can borrow. However, it is important to remember that they provide a very general guide and may not reflect the true amount you can borrow.
Budget
One of the most important things to consider when asking yourself “How much can I borrow?” is your capacity to maintain the month-to-month repayments in the long-term.
A budget can help you visualise how much you can borrow currently. So it’s a good jumping point for figuring out what you may feel comfortable paying, further down the track. As a broad guide, think about your ideal loan repayment being close to what you are paying now plus some incidental expenses (holidays, car repairs) and scheduled outgoings (school fees, bills).
A financial advisor can help you draw up a more detailed budget and project any potential changes to your circumstances in the coming years. They will also be able to go over how such changes may affect your financial situation and level of comfort making your repayments.
How much should I borrow?
Most home loan providers, such as the Bank of Queensland, can easily determine a safe, ballpark borrowing limit for your financial situation. However, without knowing the particular details of your finances, it is not always a completely accurate figure. It is important that you cross-check this amount with your own budget.It is also important to take into account any changes that you may be expecting in the future as they can affect your repayment capacity. For example, you may ask yourself:
• Am I expecting a change to my salary?
• Am I planning on have children?
• Am I thinking of cutting back on my work commitments?
• Are there any extra expenses that I have to service in the future?
• When am I planning to retire?
These questions can help you decide on an amount that you are willing to borrow.
While it’s tempting to paint a positive portrait of your financial future in order to increase your borrowing power, you also want to make sure that you don’t stretch yourself too thin in the future. So be honest and practical!
Now that I have an idea of how much I should borrow, what should I look for in a home loan?
There are so many kinds of home loan. It’s important to find the best one for you. Some features you may want to look for are:• Flexible repayment options
• Additional benefits such as redraw facility and repayment holidays
• Account fees
• A competitive home loan rate
