What is borrowing power or maximum borrowing?
Borrowing power, also known as maximum borrowing or borrowing capacity, is the answer to the question: How much can I borrow? It is the amount of money that a lender is willing to lend you, based on your financial situation. It is calculated using a number of factors, including your income, expenses, debts, and credit score.Â
How is borrowing power calculated?
There is no one-size-fits-all answer to this question, as lenders use different formulas to calculate borrowing power. However, some of the key factors that lenders consider include:
Income: Lenders will want to see that you have a stable income that is sufficient to meet your loan repayments.
Expenses: Lenders will also consider your expenses, such as rent or mortgage, groceries, and bills.
Debts: Lenders will also look at your existing debts, such as credit card debt and personal loans.
Credit score: Your credit score is a measure of your creditworthiness. A higher credit score indicates that you are a lower risk borrower, and therefore gives you a better chance of being approved for a loan at a competitive interest rate.
How to maximize your borrowing power?
If you are looking to maximize your borrowing power, there are a few things you can do:
Pay down your debts. The less debt you have, the more money you will have available to service a loan.
Improve your credit score. You can improve your credit score by paying your bills on time and in full, and by avoiding taking on too much debt.
Increase your income. The more money you earn, the higher your borrowing power will be.
Factors that can affect your borrowing power
A number of factors can affect your borrowing power, including:
Your situation: Some borrowers may have lower borrowing power than others, as they may have less income, more dependants or a shorter credit history.
Your job type: Borrowers with secure jobs and regular income are generally considered to be lower risk borrowers than borrowers with casual or contract jobs.
Your assets: If you have assets, such as an investment property, you may be able to use these to secure a higher loan amount.
Your expenditure: Your monthly expenditure is an important factor for lenders to determine your borrowing capacity.
How to get pre-approved for a loan?
Getting pre-approved for a loan is a great way to find out how much you can borrow and what your repayments will be before you start looking for a property. To get pre-approved, you will need to provide the lender with some basic information about your financial situation.
Once you have been pre-approved for a loan, you will have a better idea of your budget and how much you can afford to spend on a property. This will make the process of buying a home much easier and less stressful.
Borrowing power is an important factor to consider when you are buying a home. By understanding how it is calculated and what you can do to maximize your borrowing power, you can increase your chances of getting approved for a loan and buying your dream home.
This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.