Win at home loans

Need a little extra so you can buy your dream property? Here are 4 tips that can help maximise your borrowing power.

Hint: Tip #3 can help get you an extra $25,000 in borrowing power almost instantly

If you’re looking to maximise your borrowing power, then this case study will show you how to get more from lenders.  

Scott is a Business Development Manager who wanted to buy a property for $635,000. But he was having trouble raising the money because his income came from incentives, bonuses and commissions rather than a full time salary. Since lenders treat full time salaries differently, they looked at Scott as a “riskier bet”. So we worked with him to maximise his borrowing power.

If you’re in a similar situation – or if you’ve found a property that’s outside your existing borrowing capacity – here are a few handy tips that will get lenders offering you more:

Tip #1 – Get That Pay Rise

Most people don’t know that even the slightest raise in income can yield a tremendous increase in borrowing power. In fact, as little as $10,000 delivers up to $50,000 in newfound borrowing power!

Below is a chart showing how much extra lenders are willing to offer based on increases in income. As you can see, it’s possible to borrow as much as $200,000 on an extra $40,000! That number can be even higher if you’re expecting a pay rise.

 

The home loan size you can get with your salary
What is the maximum amount you could borrow on a home loan, based on your current salary? This assumes two married applicants with a total household income shared between them evenly, no dependents, living in the Sydney metro area, with living expenses based on HEM. Maximum borrowing power is based on a principal and interest repayment over 30 years at an assessment rate of 7.3% p.a.

 

Tip #2 – Keep Documents That Verify Your Income

A quick and easy way to maximise your borrowing power is to have your paperwork handy. It sounds obvious but lenders only assess you based on your declared income. Unfortunately, many people seek financing based on a word and handshake. This costs them borrowing power, oftentimes hundreds of thousands!

If you’re an employee: avoid frustration and get your pay slips in order – you’ll need at least 6 months. If you have a second income, pull that documentation together.

If you’re applying for a loan with a partner: ensure they have all their documentation too.

 

Tip #3 – Pay more tax

If you’re self employed: you may be seeking to minimise your income to lower tax. But again, remember, lenders only assess you on your declared income. As you will see in the table below, an extra $30,000 in declared income can increase your borrowing capacity by almost $200,000! So be sure to talk with your accountant and a qualified mortgage expert before making any decisions about your financial goals.

 

Declared (taxable) income per yearTax payable per yearMaximum home loan amount
$90,000 $22,732

$588,220
$100,000$26,632$636,987
$110,000$30,532$711,135
$120,000$34,432$784,699
$130,000$38,332 $847,469
$140,000 $42,232
$921,616
$150,000 $46,132
$970,529

This assumes a single applicant with no dependents, living in the Sydney metro area, with living expenses based on HEM. Maximum borrowing power is based on a principal and interest repayment over 30 years at an assessment rate of 7.3% p.a.

 

Tip #4 – Slice Up Those Credit Cards

This is another easy way to maximise your borrowing power. With credit cards, lenders don’t just look at your spending patterns – they assess you based on your credit limit. So if you only spend $1,000 per month on your card, but have a limit of $10,000, lenders assess you on the full $10,000. In terms of borrowing power, that’s up to $45,000 less you can borrow! Below is a chart showing how to magnify your borrowing power by losing those credit cards.

How your credit card limits affect how much you can borrow on a home loan
This graph demonstrates how reducing your credit card limit can increase your borrowing power by as much as $87,000. The scenario in this graph assumes two married applicants with a total household income of $90,000 a year, shared between them evenly, no dependents, living in the Sydney metro area, with living expenses based on HEM. Credit card payments are calculated at 3% of the credit card limit. Maximum borrowing power is based on a principal and interest repayment over 30 years at an assessment rate of 7.3% p.a.

 

Borrowing Power is NOT a Fixed Number

Here’s a final tip to remember: your borrowing power is NOT a fixed number. As you’ve learnt in this article, it’s possible to magnify your borrowing power – sometimes based on a few extra pay slips!

Plus, your borrowing power will vary from lender to lender too. So make sure you work with a qualified expert who knows which lenders to approach based on your unique situation. And, as always, consider loan amounts suited to your circumstances and capacity.

 

This information in this article is general only and does not take into account your individual circumstances. It should not be relied upon to make any financial decisions. uno can’t make a recommendation until we complete an assessment of your requirements and objectives and your financial position. Interest rates, and other product information included in this article, are subject to change at any time at the complete discretion of each lender.

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Helen is Head of Content at uno - the smarter, faster way to get a better home loan.

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