Mortgage – Do You Know Your Borrowing Capacity?
How Can You Know What Your Borrowing Capacity is?
Are you thinking about taking out a mortgage or refinancing your current mortgage? Are you curious to know the answer to, mortgage how much can I borrow? There are a few factors that go into figuring how much you will be able to take out and here is the breakdown of what you are looking for.
Are You a First Home Buyer?
One important factors lenders look at with first home buyers is how much deposit they have. The more cash a buyer puts into the deal can reflect on how much the lender is willing to give. If the loan valve can be kept to 80% or less of the property purchase price this will in most instances help the borrower to increase their borrowing capacity
Are You Looking to Refinance for Cash Out?
The first factor is how much your home is worth. This will determine how much equity you have and will give you an idea of what the maximum is that is available for you to borrow. For example, if your home appraises for $600,000 and you still owe $425,000 on your home, then most lenders will allow you to borrow up to 90% of the value. This would give you approximately another $115,000
Have You Checked Your Credit Rating Lately?
The second factor is your credit rating. This will determine which category you fall under and if you have a low credit score you will not be able to borrow as much as if you have a high credit score. It works on a percentage system and the better your credit the closer to 100% of your home’s value you will be.
How are Your Money Management Skills?
The last factor that mortgage companies consider is your debt to income ratio. This is the amount of gross income you make compared to your monthly payments for your mortgage, cars, credit cards, and other things that show up on your credit report. This will not include utility payments. The maximum debt to income ratio for most companies is 55% and the lower your debt to income ratio the more you will be able to borrow.
It is a pretty simple formula that weighs the risk of lending you money against the rewards. The worse your credit and debt to income ratio is, the less they will be willing to lend to you and the higher your rate could be.
If you’re trying to maximise your borrowing capacity and get the best deal at the same time, check with a professional mortgage broker. Their services are free and they have software tools that take all of the hard work out of the process.