Six ways to increase your borrowing power.

How much can you borrow to buy a home? It’s one of the questions homebuyers commonly ask.

Your borrowing power is determined by a range of factors from your deposit and income to the value of any other debts you may have as well as your regular expenses.

With all these variables at work, the good news is there are simple steps you can take to give your borrowing power a boost. It could be the factor that lets you turn the key to your dream home sooner.

1. Save a bigger deposit.

Sure, it can be easier said than done, but it is possible to give your deposit a lift. Start by reviewing your spending, and working out where you can make painless cutbacks. With a bigger deposit, you need to borrow less, and it could get you over the line for the home loan you need.

2. Grow your income.

If it’s been a while since your last pay rise, it may be worth talking to the boss about a salary review. But growing your income doesn’t have to mean relying on your employer’s generosity.

It may be possible to earn more through a side hustle, or making your investments work harder. Or check if you’re eligible for any income support payments through Centrelink. Every bit extra can help boost your borrowing capacity.

3. Pay down debts.

Lenders want to see if you can handle home loan repayments, something that can be hampered if you’re already juggling other debts. That’s why it can make sense to pay down any personal loans, credit card balances and car loans as much as possible before applying for a home loan.

4. Lower the limit on your credit card.

You may have a zero balance on your credit card, but what lenders are really interested in is the credit limit on your card. That’s because, in theory, you could max out your credit card after you take out a home loan.

This being the case, it’s worth a phone call to lower the credit limit on your card. It’s a quick and easy step, but it could make a valuable difference to your borrowing capacity.

5. Review your credit history.

Credit reference agencies maintain a credit history for each of us. It shows how well you’ve managed bills and debts in the past, so it’s something lenders will look at when you apply for a loan.

Get in ahead of lenders by contacting credit reference agencies like Illion, Experian or Equifax to review your credit history. It can cost you nothing, but it lets you see and sort out any errors you may find on your credit file before applying for a home loan.

There are always things you can do to build and improve your credit score.

6. Cut back expenses.

All lenders like to see evidence of genuine savings for at least three months. It’s a good sign that you have the discipline it takes to manage home loan repayments.

Sticking to a healthy savings regime can mean cutting back on a few nice-but-not-necessary expenses like Friday night take-outs or luxury weekends away. However, this is also a chance to review costs that you’re really not getting real value from like, say, unused gym or club memberships.

The more you can save, the bigger your deposit – and the more you demonstrate your good money management skills.

To understand more about your borrowing power, use our borrowing power calculator.

Better still, talk to the team at Defence Bank. Call our Contact Centre on 1800 033 139, or visit your local branch.

Have any questions? We have the answers. See our FAQs.


Important note: This information is of a general nature and is not intended to be relied on by you as advice in any particular matter. You should contact us at Defence Bank to discuss how this information may apply to your circumstances.

More in this category:
All articles.