Borrowing capacity plays a crucial role in property investing. The more you can borrow, the more you can leverage growth across a larger asset base.
With property prices rising in many parts of Australia, maximizing your borrowing ability gives you greater purchasing power. A higher loan amount means you can aim for that next-tier suburb or extra bedroom.
Fortunately, there are multiple ways to expand your borrowing potential for investment purposes. Let’s look at strategies both new and existing investors can use to increase their loan amount.
Assess Your Current Borrowing Ability
Firstly, find out what you can borrow right now. Connect with a mortgage broker to get a detailed understanding of your current borrowing capacity.
They will consider your income, expenses, debt, credit profile and existing assets. Make sure to disclose everything accurately.
This gives you a baseline number to work off when implementing borrowing-boosting strategies.
Grow Your Income
Lenders calculate borrowing capacity based on your ability to service a loan. So increasing your income immediately lifts borrowing power.
Consider taking on overtime, finding a higher-paying job, monetizing a hobby or skill, or doing some consulting/freelance work on the side. Even a 10-20% rise in income can add tens of thousands in borrowing ability.
If possible, structure a pay rise or bonus to hit just before applying for finance. The timing maximizes the benefit.
Reduce Living Expenses
Lenders assess how much income you have left after regular living expenses. To raise borrowing capacity, reduce your expenses.
Scrutinize your spending patterns to identify areas you can cut back, for example dining out, entertainment, memberships, clothes shopping or taking holidays.
Redirect frees up funds to pay down debts faster, which improves your net asset position. Lower debts equal higher borrowing power.
Add a Mortgage Co-Borrower
Borrowing with a partner, family member or business partner combines your income, boosting entitlements.
Ensure potential co-borrowers have a solid credit history. Their poor credit could drag down joint borrowing capacity.
Have them contribute funds towards the deposit. With two parties investing, you can target higher-priced properties.
A mortgage guarantor could also provide borrowing capacity benefits in some situations.
Consolidate and Pay Down Debt
Lenders look at your entire debt profile when assessing serviceability. Pay down or consolidate debts to maximize your borrowing muscle.
Make extra repayments on your home loan, personal loans or credit cards to reduce balances owing faster. This frees up capacity to borrow more.
Consolidate high-interest debts like credit cards and personal loans into your mortgage at lower rates. This reduces repayment burdens.
Review Property Portfolio Loans
If you already have an investment portfolio, optimize your financing structures to extract maximum equity for reinvesting.
Refinancing to lower rates or interest-only loans can boost cash flow for new acquisitions. Splitting or consolidating loans may also help.
Lenders can assess loans separately when structured correctly, improving serviceability for fresh borrowings.
Manage Your Credit Rating
Credit scoring impacts borrowing ability. Maintain a high credit rating by managing credit responsibly.
Service all debts and commitments on time. Avoid applying for unnecessary new credit. Keep existing credit cards open.
Having a history of reliable credit helps demonstrate you’re a responsible borrower able to take on more debt.
Grow Your Cash Reserves
Larger cash savings show lenders you can cover costs and withstand changes in circumstances. Deposit funds add comfort.
Build your savings over time through budgeting, investing, and avoiding cash splurges. High-interest accounts can accelerate growth.
The more cash you have for deposit and purchase costs, the less you need to borrow. This improves serviceability.
Use a Mortgage Broker
Mortgage brokers have specialized expertise in assisting investors in maximising borrowing potential.
They can access loan products and lenders tailored to your situation. Brokers stay abreast of the latest credit policies and work with you long-term.
Good brokers package your application optimally to highlight borrowing affordability based on your profile and goals.
Implement Strategies Early
Give yourself time for these strategies to take effect before applying for investment finance.
For example, letting your income rise, debts fall and savings grow over 6-12 months will maximize borrowing capacity improvements rather than a sudden quick fix.
Partner with your broker early to develop a long-term plan to ramp up borrowing muscle.
With the right preparation, you can put yourself in a prime position to invest at higher levels as opportunities arise.
