An easy way investors can maximise total borrowing capacity

How to raise your maximum borrowing capacity

If you’re careful with your selection of lenders, you could greatly increase your borrowing power and grow your investment property portfolio quicker.

Finding the right financing is crucial for any property investor. The home loans you choose to fund your property purchases can mean the difference between the success and failure of your investment strategy, so you need to take plenty of factors into consideration when choosing a lender.

Many investment borrowers aren’t aware of the fact that they can significantly increase their borrowing capacity by carefully choosing lenders. By adopting a long-term approach and spreading your loans among a variety of lenders, you can maximise your borrowing power.

Each lender is different

Every Australian home loan lender has its own unique lending criteria and level of risk tolerance. This not only affects who a lender will offer financing to, but also how much it will let you borrow to purchase property.

When you apply for a home loan, you need to supply details of your employment, income, assets and liabilities. The lender then uses this information to determine your capacity to service a loan, as well as check whether you sit comfortably within the lender’s own acceptable risk parameters.

But because no two lenders are the same in the lending strategies they adopt, you will find that you may be eligible to borrow more from one lender than you would from others – even if your income, assets and liabilities are identical across each separate loan application. For example, Lender A may be willing to approve a loan of $500,000, while Lender B has a slightly more generous lending policy and approves a loan of $525,000. Meanwhile, Lender C has a more conservative approach to lending and will only approve a loan of $440,000.

As you can see, this can lead to substantial differences in how much you can borrow and by adopting a long-term diversified lending strategy, you can maximise your borrowing power and grow your investment property portfolio as quickly as possible.

Diversified lending structure for property investors

As a property investor, you can use the different lending policies of Australian banks to your own advantage. Instead of simply doing all your home loan borrowing with the one bank, diversifying your borrowing across a range of lenders could potentially double your borrowing capacity. This is done not only by choosing loans from multiple lenders instead of just one, but also by making sure you choose the right lender at the right time for someone in your financial position.

Let’s take a look at the example above, where Lenders A, B and C each offered a different borrowing capacity to the same borrower. If you chose a loan with Lender B, you could purchase a $400,000 investment property and still have $125,000 of funding left over before your borrowing power was maxed out.

But by splitting your investment borrowing between the three lenders, you could potentially borrow a much larger amount. For example, you could take out a home loan to buy your principal place of residence with a lender that specialises in offering affordable loans for first home buyers, but that also makes it easy to access the equity in your home at a later date. The first lender will typically be one with a stingy lending policy and that is unlikely to approve future loans when you already have debt to pay off.

When you’re ready to buy your first investment property, you can use the equity in your home to apply for a loan with a second lender, and potentially then borrow to buy a third investment property and so on. If you start out borrowing from banks with fairly strict lending policies and then borrow funds from lenders with a more generous lending approach, you can maximise the amount of financing you can access.

By adopting a considered, long-term approach, you might be surprised just how much you can increase your borrowing capacity. However, as this is quite a complex strategy, you’ll need help from a mortgage broker to make it work.

Benefits of diversified lending strategies

There are many benefits to diversifying your investment borrowing across a range of lenders, including:

  • Multiple lenders. You can access a higher level of financing by using multiple lenders instead of if you organise all your borrowing through just one lender.
  • Maximise borrowing power. By using the right lender at any particular point in time based on your individual financial circumstances, you can greatly increase your borrowing capacity.
  • Spread debt around. By using multiple lenders, you are not at the mercy of any one lender who may limit your future borrowing capabilities or stop you from accessing equity.
  • Build a bigger portfolio. With increased borrowing power, you can build a larger, more diversified portfolio of investment properties.

Talk to a mortgage broker

If you think a diversified lending approach could help you build your property portfolio, chat to a mortgage broker who specialises in investment borrowing. You’ll need the expert knowledge of a broker to help you understand the different practices and policies of each lender, and to know which lender is the best one to approach at any particular time. Just as your financial circumstances are constantly changing, lenders also regularly update their lending policies to reflect market trends and their own appetite for risk.

A mortgage broker will also be able to tell you whether borrowing from more than one lender is the most effective approach for someone in your financial situation, ensuring that you make the right decisions about financing your investment purchases.

You can compare mortgage brokers below.

Rates last updated May 25th, 2018
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Aussie Home Loans
Aussie Home Loans
Aussie is one of Australia's leading financial service providers, having won The Adviser’s Top Mortgage Broker award for the last 3 years. They charge no appointment fees and can meet at a time and place which suits you.
Up to 22 lenders Enquire Now More info
Finsure has loan offers from over 35 lenders, including major brands, and will work to find a home loan that suits your property needs.
Over 35 lenders Enquire Now More info
eChoice Mortgage Brokers
eChoice Mortgage Brokers
When you do business with eChoice you will be given your own home loan manager to help you select a loan. 25 lenders Enquire Now More info
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