How to Maximize Borrowing Power: Tips for First-Home Buyers

Buying your first home is an exciting milestone, but securing a home loan with sufficient borrowing power can be challenging. Lenders assess multiple factors, including income, debt, credit score, and savings, to determine how much you can borrow. By strategically managing your finances, you can boost your borrowing power and increase your chances of purchasing your dream home. Here are some essential tips to maximize your borrowing capacity as a first-home buyer.

1. Improve Your Credit Score

Your credit score plays a major role in determining your borrowing power. A higher score increases your chances of loan approval and can help you secure better interest rates.

• Check your credit report for errors and dispute inaccuracies.
• Pay off outstanding debts and ensure bills are paid on time.
• Avoid multiple credit applications within a short period.

2. Reduce Existing Debt

Lenders assess your debt-to-income (DTI) ratio to determine how much of your income goes toward existing debt.

• Pay off credit card balances and personal loans.
• Close unused credit accounts that could impact your borrowing capacity.
• Avoid taking on new loans before applying for a mortgage.

3. Increase Your Income

A higher income allows you to borrow more and meet lender requirements more easily.

• Consider negotiating a pay raise or looking for higher-paying job opportunities.
• Explore side hustles or freelance work to supplement your income.
• If possible, include rental income or additional household income sources in your application.

4. Save for a Larger Deposit

The larger your deposit, the lower your loan-to-value ratio (LVR), which improves your borrowing capacity.

• Aim for at least a 20% deposit to avoid Lenders Mortgage Insurance (LMI).
• Take advantage of government grants, such as the First Home Owner Grant (FHOG) and First Home Guarantee Scheme.
• Consider setting up an automatic savings plan to consistently build your deposit.

5. Minimize Unnecessary Expenses

Lenders review your spending habits to assess your financial responsibility.

• Cut back on discretionary spending, such as dining out and subscriptions.
• Maintain a stable and well-managed bank account history.
• Reduce major expenses in the months leading up to your loan application.

6. Choose the Right Loan Product

Different loan types impact how much you can borrow.

• Compare fixed vs. variable rate loans to find the best fit.
• Consider low-deposit home loans if you have limited savings.
• Explore loans with offset accounts or redraw facilities to optimize your financial management.

7. Reduce Your Living Costs

Some lenders factor in your cost of living when assessing loan applications.

• Reduce rent payments by considering shared accommodation before buying.
• Avoid expensive car loans or lease agreements that impact affordability.

8. Get a Guarantor

A family guarantor can help increase borrowing power by using their property as security for your loan, reducing risk for lenders.

9. Seek Professional Advice

A mortgage broker can compare multiple lenders and suggest tailored loan options to maximize your borrowing power. They can also help you navigate government incentives and lender requirements.

Final Thoughts

Maximizing your borrowing power requires careful financial planning and discipline. By improving your credit score, reducing debt, increasing your deposit, and choosing the right loan product, you can enhance your chances of securing a higher loan amount. Seeking guidance from a mortgage broker can also help you find the best deal tailored to your financial situation.