How can I increase my borrowing power?

You should never try to borrow more than you can comfortably afford to repay. Lenders all have their own idea of how much money they can lend you. So taking some simple steps to increase your borrowing capacity is not a bad idea. Save a bigger deposit. The more you have saved the stronger your position. Sort out your debts before applying. Debts count against your borrowing power, especially high-interest debts. Cut back on your spending. A few months of careful spending will make you a stronger applicant. Draw up a budget and examine areas where you can cut back. Check with several lenders before applying. Every lender will give you a different borrowing power estimate based on its own set of criteria and policies. It's a good idea to look at multiple options (don't apply, just enquire) as the difference between lenders can be tens of thousands of dollars.

I've got a good sense of my borrowing power, what's next?

Once you have a clear idea of your borrowing capacity it's time to look at your deposit, start searching for properties and research your home loan options. You can't really apply for a home loan until you've bought a property, but you can apply for pre-approval.

Will my credit score affect my borrowing power?

One factor that isn't captured in a borrowing capacity calculator is your credit score. But when it comes to the application then your lender will look at this too. That's why it's a good idea to check your credit score before you apply.

What about if I'm a self-employed borrower?

Your borrowing power looks a little different if you run your own business. There are various types of business income that banks and lenders look at when considering borrowing capacity for a self-employed borrower. This includes personal and business tax returns and business activity statements. If you're self-employed and can't easily prove your income, estimating your borrowing power is trickier. Talking to a lender directly might give you a clearer picture than using a traditional borrowing power calculator.

Do lenders publish their borrowing capacity calculation methods?

Every lender calculates things like your expenses differently, although they often use the same basic method. This means every lender gives you a different borrowing amount when you use their calculators. Unfortunately banks keep their lending criteria a secret from borrowers. This means that while some borrowers can qualify for a loan, other borrowers might not qualify, even though they might look as promising as the other candidate.

How do banks treat bonus income for a home loan?

Whether a lender will consider bonus income as part of your home loan application depends on the lender and the type of bonus you receive. In many cases, receiving bonuses can improve your borrowing capacity. In others it may be disregarded altogether. Irregular bonuses are less likely to be assessed by a lender. If you can prove that you are paid bonuses or commissions on a regular basis and with a consistent amount, a lender will usually be satisfied to include it in your home loan assessment. Overtime bonuses may be considered if you work in a specific profession, such as emergency service workers, or if you have a contractual agreement to work a certain number of overtime hours per month. If you receive additional income off the back of an investment property, lenders will usually take a large portion of that income into consideration. It won't take the full 100% as it assumes some of the income will go towards maintaining the property or properties. Income from investments like stocks and shares may also be considered by lenders depending on the payment structure and the type of investment. Speak to your lender or mortgage broker to find out whether your bonus income will be assessed. Always be sure to provide evidence of your bonuses through tax returns, payslips and/or a letter from your employer.

Can I get a home loan on maternity leave?

Although you possibly can get a home loan while on maternity leave, lenders may see you as a riskier borrower because your income is reduced. This means you would not be able to borrow as much as you would on a full income. There are a few things you could do to improve your chances of being approved: Get documention from your employer detailing the terms of your maternity leave, such as the dates and your salary upon your return. Save at least a 20% deposit. Set a realistic budget and loan amount. Talk to multiple lenders before applying. Too many rejected applications will look bad on your credit report, so be sure you get the answers before you apply. Consider talking to a mortgage broker. If you want to increase an existing home loan, you may be able to do this while on maternity leave. The increase would need to be a reasonable amount with a lender who will accept you and you can prove that you can afford it.

What information do I need to actually apply for a mortgage?

Once you reach the home loan application stage you will need to gather some information about yourself, your finances and the property you are buying. You can check out our detailed guide on preparing home loan application documents, but in general you will need: ID documents Recent bank statements or other proof of income The address of the property you're buying Information about your assets and debts