Continuing on the topic that Trusted Finance shared last time about “How to calculate your borrowing capacity”, this article will analyze more clearly how “How to increase the ability to get a loan from the bank?”. In other words, it will share with you how to improve the factors related to your ability to borrow money from banks. Besides the fixed elements, there are other items that borrowers can work on to greatly improve his or her borrowing capacity.

  1. Increase income: you can not increase the amount of income on your payslips. However, for sources of cash income, you can deposit into your bank account to increase your income. There are still a few banks that accept cash income on the condition that you submit and show a regular balance in your bank account. Similarly, for the cash rental income, the bank needs to see your deposit regularly.
  2. Keep “positive” transactions: As mentioned above, because the bank may check your bank transaction history, keeping the “positive” transactions before applying for a loan is what you should do for at least 3 months before you submit your application. The so-called “positive” transactions are usually: on-time payments for your bills, no transaction of you reaching credit limit or overdraft limit. In addition, you should not submit many applications for credit cards, or register for multiple sim cards… You should hold any debt assets – for example, apply car loan for other people, open a credit card for other people under your name, or even a shopping card (like Myer cards; David Jones cards; …). Because those things will affect your credit score, and the results may affect your bank’s application if the credit score is low.
  3. Select the “right” bank: there are many types of income (as mentioned in the previous article) so choosing a bank is very important – you need to choose the bank that accepts your income type.
  4. Taxation: Be ready with all tax returns will also be an advantage because the bank will trust and appreciate stable sources of income and pay the full tax.
  5. Cut down on unnecessary credit cards: as mentioned in the previous article about how banks calculate their ability to borrow. Even if you have a credit card and don’t spend it, the bank still charges a certain amount of 2-3% of the credit limit. For every $ 10,000 of the credit line, the bank will cut its ability to borrow between $ 200- $ 300. So you should close and leave only one credit card is needed with the possible lowest credit limit. And remember to make regular payment of the credit card balance monthly without delay even 1 cent or 1 day.
  6. Afterpay: the policy for postpaid is one of the attractive promotions for shopaholics. However, if you are intending to borrow money from a bank, you should pause these activities. Because the bank will subtract the amount you are about to pay on the loan, even though the loan is 30 years and this purchase is only a few months of the year. For example, you buy a pair of shoes for $ 400, with an afterpay of $ 100 per week for the next 4 weeks. Your ability to borrow will be deducted immediately by $100 if the bank sees this number. Besides, the bank requires you to provide the afterpay transaction history to confirm the average amount you spend.
  7. Sharing living expenses with your partner: if you are borrowing under your name alone, you should share your bills with your spouse – who is not on the loan. For example, if you only pay expenses on your own, your monthly spending is $3000, the HEM for 1 adult (2 adults in the house) is $2700, the bank will still consider the loan with the living expense of $3000.
  8. Consolidate other non-securities loans (personal loans, credit loans; car loans) into a home loan if possible. The reason is these debts often have very high-interest rates and short repayment periods – causing a high amount of monthly payments. Meanwhile, home loans are often much lower interest rates and the repayment period is longer so the amount paid each month will be less.
  9. Consider interest-only loan: Before revising this article to post, a customer asked me about the interest rate only rate, I answered that the interest rate is usually much higher than the interest rate normally. But surprisingly, the interest-only is now 2.34% (fixed 3 years)! Some banks will lend you more if your monthly payments are low and you can use Interest only products to increase your capacity of borrowing.
  10. Increase your savings: you will laugh at this tip as it is too obvious. But I still want to point out here to emphasize the importance of planning. You need to have certain savings before asking for bank loans. And most banks want to see that you can truly save before you buy a home. Also, the more you have in your saving, the more you save. For example, when you want to borrow $ 500K, you can contribute $ 100K or 20% of the loan, then you have saved some insurance money for the bank (Lender Mortgage Insurance – LMI). If you only have $ 50K, it does cost you another 10k to pay for LMI mean you need to have the loan of $460K, not $450K.

People also talked about cross-collateralize (bringing all assets into one bank) for higher borrowing capacity. In theory, when you have 2 houses: 1 owner-occupied and 1 for investment, if you bring all these assets into the bank, and maximize the investment loan, the depreciation is higher and you might get a higher borrowing capacity. However, in reality, it is not the case. The bank might apply a higher assessment rate on the second home that the bank owns itself than another bank – the financial principle of “not putting all your eggs in one basket”. In addition, in the worst case of cross-collateralized, the bank will force you to liquidate all your collateral if the loan is on deferred payment. Therefore, please take into consideration carefully before planning for cross-collateral.

To summarize today’s topic, getting a home loan is an important thing, you should plan everything in advance carefully to ensure the best results. The above tips are only for reference purpose, if you would like to apply in your case, you are advised to consult with industry experts. Trusted Finance team is confident to be your best pal in giving you the best advices in preparing your home loan application. Contact our professional team today!

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