8 ways to improve your borrowing power

There's a few little tricks to increasing your borrowing power, read on!

Most home buyers, whether first home or investors, want to know, ‘how much can I borrow’? Knowing your borrowing power sets up your property search and helps you narrow down on the bracket of properties you can be checking out and making offers on, so it’s a key thing to get across! But maximising your borrowing power is key! Having an amazing mortgage broker in your corner is critical for this stage, so reach out if we can help you find one. Otherwise, let’s walk through the 8 ways you can increase your borrowing power.

#1 increase your income

Your ability to save your home deposit and service a loan rests heavily on your income - it’s a major driver of what a lender will be willing to offer you. Check in on your income and see if there’s any way to increase it - either through a pay rise, obtaining a promotion or job offer elsewhere, or consider Glen James’s advanced income quadrant.

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#2 keep your expenses lean

Now is the time to get the best deal on every plan, subscription and service you utilise. Call all of your providers and ensure your deal is the best it can be, and if it isn't, move to a cheaper provider. Stick to your essentials like accommodation, bills, groceries and transport - cut back to these to begin with a build up from there, really challenging every expense in your budget. Could you cancel something for a while? Don’t be afraid to cut something from your budget entirely - even for a little while to build some extra cash flow and to help build your deposit.

#3 crush your consumer debt

Even a small personal loan can impact your borrowing power by tens of thousands of dollars. TENS. So long before you set out to buy a property you’ll want to be paying off your consumer debts like credit cards and personal loans to free up more borrowing power. The upside of this is you’ll be freeing up cash flow in your everyday budgeting - such a win!

#4 create a savings account you contribute to regularly and do not touch it

Setting up your deposit savings account away from your everyday banking is crucial - it keeps your hands off it and lets it grow! But lenders will also ask for proof of savings like this, so build up a good track record in this account. Be aware that there are also costs aside from the deposit you’ll want to prepare for - removalist costs, the costs of cleaning your old place, home and contents insurance, any renovations you might want to do immediately after purchase and even a kickstarter fund for ongoing future expenses like council rates or strata fees. And let’s not forget the emergency things you can’t plan for like hot water units dying right after you move in! Ouch. Costs will vary depending on the property you buy so be well read and researched for what will impact your budget once you move in.

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#5 dodge buy-now-pay-later schemes

When a potential lender sees the repayments from buy-now-pay-later schemes listed on your bank transactions it immediately sends the message that you can’t afford things up front. It sets the stage for the assumption that you are using these schemes to either buy things you don’t need or can’t afford. Even if this isn’t actually the case, there’s no way of showing them that it isn’t! Do yourself a massive favour - pay off these accounts, shut them down and take a break from them temporarily (or forever hehe). You’re also freeing up your cash flow and trust us - once you go without these schemes, you’ll never go back. Start focusing on saving up cash to buy the things you want.

#6 reduce eating out and home delivery services

If your weakness is buying meal deliveries through services like Menulog or UberEats, lenders might not view your spending as favourably. We all know it costs less to eat with food we’ve cooked ourselves, but oh man it’s sooooo convenient and delicious to order take away. We get it, which is why we’ve written this blog about meal prepping! Cooking at home can be just as delicious, we promise, plus you’ll be clearing up your transaction record and saving tonnes to put towards your deposit.

But remember! Don’t let your grocery spend get too out of control. If you spend $350 on groceries one week, lenders will assume that’s happening EVERY week. Get really good at buying groceries cheaper.

#7 watch your ad-hoc spending

You know that last minute trip to the pub with your mates where you spent $400 on the bar tab? Oooof. Time to cut that out. Potential lenders will see that on your records and assume that $400 is a regular behavioural spend, and it will majorly detract from your borrowing power. Find a cheaper way to celebrate with your friends.

#8 consider all lender options

By seeing a mortgage broker you can flick through all possible lenders and select the option that suits you best, and in some cases one lender may offer you more! Get in touch with us if we can connect you with a mortgage broker to get started. Remember that you can ask mortgage brokers heaps of questions and ask them at any stage how your situation might look to lenders before getting a proper pre-approval in place.