Buying your first home is an exciting milestone, but let’s be real—it can also feel a little overwhelming. With so much information out there, it’s easy to get lost in the jargon.
One of the most important things to understand before diving into the property market is your borrowing power—a fancy way of saying how much a lender is willing to loan you.
So, let’s break it down in a way that actually makes sense.
What determines your borrowing power?
Think of borrowing power like your financial report card. Lenders assess a few key things before deciding how much they’ll lend you:
- Income and employment stability – The more consistent your income, the better. If you’re a full-time employee, lenders love the security. Self-employed? No worries—you’ll just need extra paperwork to show you’re financially stable.
- Existing debts and expenses – Car loans, credit cards, and buy-now-pay-later services all chip away at how much you can borrow. The less debt you have, the stronger your position.
- Credit score – This little number tells lenders how responsible you are with money. A higher score = more trust = better loan options.
- Deposit size – While there are options with as little as a 5% deposit (or even 2% for eligible buyers), a bigger deposit can mean a better deal.
How to boost your borrowing power
If the numbers aren’t quite where you want them to be, don’t stress! Here are some ways to improve your borrowing potential:
- Reduce unnecessary debt – That Afterpay habit? It might be hurting your chances more than you think. Paying down existing debt can increase how much you can borrow.
- Save a bigger deposit – The more skin you have in the game, the better the loan options. Even an extra couple of thousand dollars can make a difference.
- Improve your credit score – Pay your bills on time, avoid maxing out credit cards, and keep your financial history clean.
- Consider a guarantor – If you have family willing to help, a guarantor loan could get you into a home sooner without a huge deposit.
The next step: Pre-approval
Once you’ve got a solid grasp on your borrowing power, it’s time to take the next big step—getting pre-approval. Think of it as your golden ticket to homeownership.
Pre-approval is essentially a promise from the lender to loan you a certain amount, based on the information you’ve provided.
It’s a great way to show sellers you’re serious about buying, and it helps you narrow down your property search to what’s actually within your budget.
Here’s why pre-approval is a game-changer:
- You’ll know exactly how much you can borrow, helping you avoid falling for homes that are out of reach.
- You’ll have a lender’s backing when it’s time to make an offer, which can give you an edge in competitive markets.
- With pre-approval in hand, the application process moves faster when you’re ready to make an offer on a property.
Need help navigating the process?
You don’t have to figure this all out alone. As mortgage brokers, we’re here to simplify the process, find you the best loan options, and make sure you get into your first home with confidence. Reach out today for a chat—we’d love to help!
* This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.
