With international lenders generally imposing stricter lending rules for foreign buyers – whether you’re trying to buy property in Spain, Australia, or anywhere in between – being able to boost your borrowing capacity is a must as it gives you access to:
- Larger loans
- Better interest rates
- More favourable terms
Your borrowing capacity determines how much a lender is going to give you based on things like your income, credit history, and debt – so, when you have a higher borrowing capacity, it essentially makes it easier to secure the home you want.
1. Improve Your Credit Score
Having a strong credit score not only helps you qualify for a mortgage in the first place but also means you’ll unlock lower interest rates and generally better loan terms – here’s how you’re able to give your credit score a boost:
- Pay bills on time: Late payments will naturally hurt your credit score. Staying on top of all your bills -from utilities to credit cards – builds a solid track record
- Lower credit card balances: Try to use less than 30% of your available credit since high balances can easily drag your score down
- Limit credit inquiries: Every time you apply for new credit, your credit score is impacted. Make sure you only apply for credit when you actually need it and never take on new debt right before applying for a mortgage
2. Reduce Existing Debt
Lenders care about your debt-to-income ratio (DTI) – how much you owe compared to how much you actually make – since it generally shows them that you’re in control of your finances and can handle more borrowing. So, the less debt you have, the more they’ll feel comfortable lending to you:
- Pay off high-interest loans: You should focus on clearing credit cards or personal loans first since they usually come with much higher rates than other types of loans
- Consolidate debts: Roll all your debts into one loan with a lower interest rate so your overall monthly payments are lower (there are plenty of banks that offer this service) as it helps your debt-to-income ratio
- Don’t take on new debt: Hold off on making any big purchases on finance or opening new lines of credit before you apply for a mortgage
3. Increase Your Income
More income typically means that you can qualify for bigger loans, and although it’s easier said than done to achieve that, it is still one of the simplest ways you can increase your buying capacity.
Keep in mind that lenders tend to prefer stable and long-term income growth rather than a one-off lump sum of cash falling onto your lap, so any changes to your wage here need to be consistent:
- Ask for a raise: If you’ve been at your current job for a while and have a good track record, don’t be shy with asking for a pay bump
- Pick up side gigs: Freelancing or part-time work will also give you a boost, and lenders definitely take extra income into account
- Get rental income: If you happen to own property and it’s possible to rent out a room – even using Airbnb for additional income – plenty of lenders will factor this in
4. Extend the Loan Term
Opting for a longer loan term in general is another clever way of increasing how much you can borrow, since spreading the loan over more years means your monthly payments will drop. As such, lenders are usually a lot more comfortable with approving a higher amount.
For instance, going from a 15-year loan to a 30-year loan will drastically reduce your monthly bill. Yes, you’ll naturally pay more interest over time, but it means you’ll qualify for a bigger loan right now.
The extra interest factor here is why it’s not the first suggestion on this list, but it’s still a useful trick if you’re trying to buy in an expensive market or just need a bit more wiggle room in your budget.
5. Provide a Larger Deposit
A bigger down payment is going to lower the amount that you actually need to borrow as well as reduce the loan-to-value (LTV) ratio – lenders love low LTV ratios because it makes their loans far less risky. The lower the LTV, the more they will be willing to lend you.
As an example, if you put down 20% instead of just 10%, it shows that you’re financially stable enough to be without that kind of money, naturally giving them more confidence in you as a lender. Aside from that, larger deposits can sometimes even lead to better interest rates, so this will save you money over the long term, too.
Think about what we mentioned in an earlier step about increasing your income – if you can, try to save a bit of that extra money so you can put it into making a larger deposit. It can go a long way in boosting your borrowing power.
6. Consider Joint Applications
If you can apply with someone else – whether that’s a spouse or a partner – it can seriously bump up your borrowing capacity. When you apply jointly, lenders take a look at both incomes, so this will increase how much they’ll lend.
This strategy definitely isn’t for everybody, but if you are considering it, just make sure that your co-borrower has solid credit, since both of your financial histories are going to be considered here.
- Combined income: Getting another part time job is a decent start, but two full time incomes are obviously going to be better than one – especially in pricier real estate markets where a single salary probably isn’t going to cut it
- Shared debt: If your partner has less debt or even just a higher income than you, their financial situation can actually balance yours out on the application
7. Minimise Living Expenses
Lenders will usually take a close look at your monthly expenses so they can see how much money you’ve got left over to make your mortgage payments.
If you cut back on any unnecessary expenses – that subscription service you don’t even use any more, for instance – then you’ll free up more room in your budget and show lenders you’ll be able to handle a bigger loan since the less you’re spending, the more you can borrow.
- Stick to a budget: Track where your money is going and look for areas where you’re able to reduce, like dining out frequently.
- Lower bills: Basic things like switching to energy-efficient options or negotiating with service providers can shave down some of your monthly costs
- Delay big purchases: Wait a bit before you buy expensive items like cars or taking vacations until after you’ve secured your mortgage
Conclusion
Maximising your borrowing capacity is going to make all the difference when it comes to getting the mortgage that you want, so whether it’s:
- Improving your credit score
- Paying down debt
- Adjusting your loan terms
- Increasing your income
All of these strategies are going to put you in a much stronger financial position and will give you access to better interest rates and terms.
Looking to increase your borrowing power? With Upscore’s Finance Passport, we help you unlock better loan opportunities across borders. Check your credit score today and see how we can help you maximise your borrowing capacity!
