How can we increase our borrowing capacity?

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Bruce
Posts: 34
Joined: Thu Jun 20, 2013 6:21 pm

How can we increase our borrowing capacity?

Post by Bruce »

Hi,

My wife and I have been planning on investing in a house located in Normanton. We have sufficient savings but we still need to take out an investment loan. Our joint yearly income sums up to around $120,000 and we know that we can afford the loan.

We want to borrow as much as we can. Is there anyone who can tell us how we can increase our borrowing power?

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Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: How can we increase our borrowing capacity?

Post by Otto Dargan »

Hello Bruce.

Welcome to the forums.

In order to increase your borrowing capacity on the investment loan, you may:
  • Reduce your credit card limits,
  • Apply for loans jointly with your spouse so that all of your income can be used,
  • Apply with a lender that has favourable lending criteria for investors,
  • Buy positively geared investment properties, or
  • Fix your rate for three to five years.
Different lenders have different methods of assessing investment property loans. Your borrowing capacity may be increased or reduced depending upon your situation:
  • Assessment rate - Most lenders may use the actual rate that you are paying to calculate your borrowing capacity. They may add up to 2% to the current rate to make sure of your ability to pay back the loan if the rate were to increase.
  • Existing debts - Although you may be paying interest only, some lenders may assess the repayments on your existing debts using principal and interest repayments.
  • Rental income - Many lenders may use only 80% of your rental income in their assessment. However, few lenders may use 100% in some cases.
  • Other income - Almost all lenders may assess your base salary in the same way. However, they tend to differ in the assessment of overtime, bonuses, commission, allowances, trust distributions, dividends, and self employed income.
  • Negative gearing - Only some lenders may take negative gearing benefits into account. If your portfolio is not positively geared then it is recommended to find a lender who can include these benefits in a serviceability calculation.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Bruce
Posts: 34
Joined: Thu Jun 20, 2013 6:21 pm

Re: How can we increase our borrowing capacity?

Post by Bruce »

Hi Otto,

We’d forgotten to mention that we are planning on investing in the house as joint owners. We’re glad that this will help us increase our borrowing capacity. Can you now tell us how the banks will assess our loan application for joint ownership of an investment property?

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Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: How can we increase our borrowing capacity?

Post by Otto Dargan »

Hi Bruce,

Lenders may assess your investment loan a bit differently if you are buying a property as joint owners.

Lenders may take the following into consideration:
  • One person having a good credit history cannot compensate for the other having poor credit. However, this may not be the case if the other’s income is not required to prove that you can afford the debt.
  • One person having a high income may be able to compensate for the other’s inability to afford their share of the repayments.
You may be credit scored in a slightly more favourable way than you may have if you had applied as a single applicant. It should be noted that the asset position of each borrower may be assessed differently depending upon the lender you apply with.

You can learn more about this on our website. You can speak to one of our mortgage brokers directly by calling us on 1300 889 743 or you can enquire online.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Bruce
Posts: 34
Joined: Thu Jun 20, 2013 6:21 pm

Re: How can we increase our borrowing capacity?

Post by Bruce »

Thanks, Otto! We looked through your website and learned a lot. We’re planning on calling you by tomorrow to discuss our loan and personal situation. Have an awesome day :D

kitt
Posts: 40
Joined: Thu Jun 27, 2013 9:13 pm

Re: How can we increase our borrowing capacity?

Post by kitt »

Hello home loan experts!

It hasn’t been long since I’ve completed paying off an investment loan. It was a painstaking task but I collected all of the major documents that I may need to provide to my accountant. What’s worse is that I was told that I may need to provide some additional documents as well! What could these “additional documents” be?

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Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: How can we increase our borrowing capacity?

Post by Otto Dargan »

Hi kitt,

Aside from the income and expenses figures from your property documents, your accountant may need some additional information like:
  • The percentage of the property that you own.
  • The address of the property.
  • The date the property started earning rental income.
  • The date of purchase if you have purchased it this year.
  • Number of days the property was used for private purposes.
  • Number of days the property was rented this year. You may ask your property manager for this.
  • A list of assets purchased and sold. This helps your accountant calculate your depreciation deductions.
You may also be required to mention if you have redrawn any funds from your loan this year. If you want to learn more then you can give us a call or have a look at our website.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

kitt
Posts: 40
Joined: Thu Jun 27, 2013 9:13 pm

Re: How can we increase our borrowing capacity?

Post by kitt »

You’ve helped me understand a lot, Otto. But I think I’ll give you a call anyway to learn more. Cheers.

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