Before you go in search of your dream home, make sure you calculate your borrowing capacity. This will allow you to look at homes that are within your budget, and will save you time and possible heartache when home shopping. Searching for a home without knowing your borrowing capacity can lead to disappointment, and in some instances, can be a financial risk.
If you find that your borrowing capacity is not high enough or you’d like to increase it to buy a better property, then there are several ways that you can improve this. These are as follows:
Save a larger deposit before buying
Saving a larger deposit will reduce the amount you need to borrow. This, in turn, will also reduce the amount that you pay in interest and you’ll have more equity in your home. Saving a larger deposit also proves to a lender that you’re a good risk and that you have the ability to manage your money.
Pay off existing debt
If you have any outstanding loans or outstanding money due on your credit cards and store accounts, then pay these off before applying for a home loan. This will reduce your financial commitments and leave you with a higher disposable income.
Reduce credit card limits
A thousand dollar credit card limit reduces your borrowing power by approximately $4,000. So if you have high credit limits, then reduce these before applying for a home loan. This will allow you to borrow more.
Decrease your expenses
If you have high living costs then look at ways you can reduce these costs. Use less electricity, spend less on entertainment, make your lunch instead of buying it, and use your car less.
Resolve any credit issues
If you have problems with your credit rating then find out how you can repair these. Work towards building-up a stronger and more reliable payment history. This will also make lenders more inclined to approve your home loan.
Increase your income
Ask for extra shifts, sell-off unwanted items, take in a boarder or think about obtaining a loan with your partner, friend or a family member.
Keep track of spending
Track your spending habits and keep good records. This will come in useful when you apply for a home loan and make it easier for you to prove you’re a good risk to a lender.
Are you seeking to increase you borrowing capacity? Then contact eChoice and find ways to borrow more today.
Written by eChoice