How much can I borrow?
* This post is written by our Finance Specialist from Geelong, Sarah Maslen*
How Much Can I Borrow?
This is one of my favourite and not so favourite questions that I’m often asked as a mortgage broker. I find it to be a double-edged sword in that it is an important and integral question, however, it’s also a question that is difficult to answer. The short answer is that there is no correct answer. And hence my dilemma in answering it, despite it often coming up over the last 10 years.
Different Lenders Lend Different Amounts
In a nutshell, all lenders will lend different amount in different situations. Some lenders are more liberal with the amount of money that they are prepared to lend than others. Often it is that simple. As a mortgage broker, I will generally be aware of each lenders criteria when lending, however, it can still vary over time. One of the benefits of being a mortgage broker is that I’m able to compare the amount one lender will lend against another. This is important, because while one lender may have a very competitive rate if a client doesn’t qualify to borrow the amount of money they require, it may be more suitable to place them elsewhere.
When a lender is calculating the amount they will lend, they take into consideration the applicant’s living expenses. As a mortgage broker, I am required to discuss living expenses with my clients and factor this into the equation. Every borrower will differ in the amount they spend per month. If you are single, living at home you are likely to spend less than if you renting a property or paying off a mortgage and supporting a young family. Lenders also will view living expenses slightly differently.
Different Lenders Have Different Credit Policy
Credit policy between lenders can vary, sometimes quite significantly. For example, some lenders may consider 100% of overtime, whilst others will only allow 80%. If you are a shift worker with a significant amount of overtime this can significantly reduce your income, through no fault of your own. Another example would be a tax-free car allowance. Not all lenders will accept this as tax free income. In particular, one of the major four lenders will not, and requires it to be entered under taxable income. Once again this can affect a client’s borrowing capacity.
Treatment of OFI’s debt
This is relevant for clients who are applying to one lender for a loan and have other borrowings with a different lender, or Other Financial Institution (OFI). The lender may treat the OFI debt in different ways. For example, they may take the actual repayment, or they may add a buffer to the actual interest rate or use a significantly higher interest rate when calculating repayments on OFI debt. Depending on the policy shown by the lender and the amount of OFI debt the applicant holds, this can again reduce borrowing capacity significantly.
The above factors all make it extremely difficult to answer the question “How Much Can I Borrow?” The truth is that it varies. As a mortgage broker, there are times when I have received wide-ranging amounts from lenders on the same application, which just shows the considerations above can be the difference between an application being approved or not.
The best advice I can give to anyone wondering “How Much Can I Borrow?” is to make an appointment to see a mortgage broker. They have the tools, the time and the experience to answer this question for you.