Borrowing power is the term used to describe how much a person can borrow based on their financial situation. When it comes to home loans, having more borrowing power means more options and often a higher loan amount.
Liberty, a leading Australian non-bank lender, says knowing what increases or decreases borrowing power can help those seeking home loans to put their best financial foot forward.
Different lenders have their own formulas for calculating borrowing power but typically consider factors including income, living costs and any other existing debts. Those with a strong credit history, a healthy deposit either in cash or in equity from property and a low debt-to-income ratio will generally have more borrowing power.
Liberty says that while it may seem counterintuitive, in some cases having no debt can decrease borrowing power. This is because some lenders find it helpful to see an ability to meet financial obligations on time.
Other factors such as interest rates and loan terms can also impact borrowing power. Borrowers will generally have more power when interest rates are low and borrowing rules are more liberal.
To gain a more in-depth estimate of borrowing power, borrowers can engage a mortgage or finance broker who is familiar with the policies of many different lenders.
A broker can compare products and features from different lenders for borrowers. This can be particularly helpful for those seeking a first homebuyer loan or looking to refinance a home loan. Brokers can also provide tips on how to help maximise the amount a lender will approve to help borrowers get closer to owning their dream home.
Liberty uses sophisticated credit assessment practices to help borrowers — including those with poor credit — to secure a home loan to suit their needs. Liberty offers a range of free-thinking home loans to help more people get financial and into a new home.
Approved applicants only. Lending criteria apply. Fees and charges are payable. Liberty Financial Pty Ltd ACN 077 248 983 and Secure Funding Pty Ltd ABN 25 081 982 872 Australian Credit Licence 388133, together trading as Liberty Financial.
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Source: Liberty Financial