Intending to borrow

If you’re intending to borrow in the near future, there are a few things you should start getting organised now if you want to maximise the amount you can borrow. Having your financial information ready to go also minimises approval times, which is a godsend if you are already looking for a property. Start with making sure your tax returns are up to date.

Proof of income

Inadequate proof of income is one of the most common reasons buyers find they can’t borrow as much as they would like. Unless you are full time and permanent, and have been in the same job for several years, the last two payslips may not be enough. If you are a casual, a contractor, self-employed, are still in your probationary period or have had a big change in industry or job-type recently, lenders may require more information.

Proof of reliability

In general, the more detailed information you can provide, the more likely your lender will be satisfied that you can afford to repay the debt. One way to show you are a reliable borrower is if you can show you have a structured savings history. Banks are impressed not just by the amount of savings you have accrued but also by someone who has been able to save money regularly.

Ditch the credit

Having too many credit cards may get you labelled a ‘credit junkie’ by the lenders’ automated scoring systems, and this will affect your borrowing capacity. Banks assume your credit cards will be drawn to their full limit, and this is seen as a liability you may have in the future. For example, if you have a credit card with a $10,000 limit and another with a $5,000 limit, a lender will assess this as $15,000 of existing debt. Ideally, when you are intending to borrow, you should pay off all credit cards and then cancel them.

Be vigilant with your bills

Ensure you pay all bills on time such as your phone and internet, insurance and utility bills. More and more, your repayment history is being recorded on your personal credit file and this is being scrutinized by lenders.

Make sure you check your credit rating so you know what you’re dealing with. If you have had any issues in the past (such as forgetting to pay a bill), make sure it’s paid before going to the lender. If there’s a valid reason why the bill wasn’t paid (for example, if you went overseas or moved house), written proof of this may help alleviate the bank’s concern. The worst thing you can do is try to hide any issues – be upfront and try to show why it won’t happen again!

Finding the right lender for your circumstances

Thanks to APRA’s policy reviews and the hot property market, lenders are changing their requirements frequently right now. Banks vary considerably in their interpretation of a borrower’s ability to repay their debt, and therefore they vary in terms of what they will lend you.

Depending on your circumstances (such as your loan to value ratio, and your ability to service the loan), it’s worth looking across the board to find a lender that will match your needs.

An inquiry of more than 20 mortgage lenders showed a single borrower on a gross annual salary of $60,000 and a credit card liability of $5000, was able to borrow $253,309 with the most frugal lender, and approximately $359,308 with the most expensive lender.

This is where having a personal mortgage broker can help you considerably in determining which lender will suit you depending on your circumstances and what you need.