How to Increase Your Borrowing Capacity?
Do you want to know how much you can borrow to build your dream home? All you think to find out the amount is grabbing a piece of paper and trying out your supernatural mathematical powers or asking other people? A much simpler way is to use a Borrowing Calculator. It is a calculator that calculates the amount you are eligible to borrow. You will have to answer some set of questions like how much you earn, how much debt you have and, what are your expenses? Then the Borrowing Calculator gives you the estimate you can borrow.
You can be unsure which home loan you would be choosing, so add your loan amount and the hypothetical interest rate as per your borrowing status. With this calculator, you can think ahead and decide if you have good financial resources to take a loan now. You can arrive at the perfect EMI you expect by trying out many combinations of the figures you specify. One can change their tenure as per their comfort of repaying the loan. Some people cannot cut down expenses and won’t come out of their comfort zone. These people can take long term loans to pay back the amount. If you are a person who does not want to pay additional interest, then choose a short period of payback by controlling and cutting down your expenses. There are a lot of ways to pay off your loans sooner.
Ways to Increase Your Borrowing Capacity:
1. Income
Your income is the chief factor that the Borrowing Calculator will use to provide you with your borrowing capacity. One should consider all legal ways of increasing their income like working extra shifts, doing online jobs during weekends, etc. Experts advise not to allow your paybacks to exceed more than 30% of your after-tax salary.
2. Investments
Making an extra investment other than your current business or job can help you increase your borrowing capacity. Also, borrowing for investing in a property can hike your loan capacity. This is because the lender sees this as a factor of extra income to you and feels more confident to lend you.
3. Savings
One can increase their borrowing capacity by saving more of their income. Save more money for the deposit of a home loan and decrease your interest rate. It is a fact that saving a larger deposit may take a longer time but, it is worth getting a higher loan amount. Generally, a bank can require 5% of the genuine savings for your deposit. It can boost the confidence of the lender in your repaying ability. Equity on a property you own can also hike your borrowing limits.
4. Expenses
People with big dreams have control over their expenses. The lender checks your expenses next to your income. These expenses may include utility bills, rent, medical expenses, school fees if you have kids and many more. Check on where you can cut down your spending. Controlling your expenses may not help you on your deposits, but it will make a significant change in your borrowing power calculation.
5. Credit cards
It is a good idea to reduce the limit of your credit card. It helps you avoid unwanted expenses. A credit card check can help you clear up all your credit issues.
6. Charges
Some charges come with the property you want to buy like, processing fees, stamp duty charges and legal costs. These costs can also have an impact on one’s borrowing capacity. These are the hidden fees that you will have to research before lending.
7. Liabilities
Splitting your liabilities with your partner or someone trustworthy can help increase your borrowing capacity. It can help lenders avoid considering you dependent.
8. Understand LMI
LMI stands for Lenders Mortgage Insurance. LMI is the fee that protects the lender if you are unable to repay the loan amount. Also, the LMI protects the lender when your deposit is not more than 20% of your property value, and the sale of the property does not equal the loan amount. This fee would compensate for the outstanding loan amount.
