It's a good idea before you apply for a loan to be on top of your expenses and cut back if you need to to be able to afford that new home. Many lenders these days will ask to see evidence of your expenses via your last three months of transaction statements.
It can make an enormous difference as to how much less you can borrow if your expenses are high. So take a look at this app and see where you can adjust your spending so you can have that dream home.
The amount you can borrow and the amount you should borrow are sometimes two very different things. Before you apply for a home loan, it makes sense to realistically assess your financial situation. Here’s how to do it.
Understand your borrowing capacity
Generally speaking, your borrowing capacity – what you can borrow – depends on a number of factors, including:
Build a budget
To fully understand what your realistic borrowing limit might be, first of all create a budget – and stick to it. Once you understand exactly what’s coming in and going out you can properly assess how much you can afford to repay – and therefore what you should borrow.
If you don’t feel comfortable drawing up the budget yourself, it’s wise to seek help. A financial planner can assist you in preparing a budget.
Expenses to include in your budget include, but are not limited to:
Remember to leave a bit of wiggle room in your budget in case circumstances change. People can lose their jobs or get sick, or interest rates can rise, which could impact your ability to honour your repayments.
It’s also important to think about some other things that may happen: Is your income likely to increase within the next few years? Are you likely to have children and lose an income? Do you plan to retire shortly? These are all questions that only you can answer, and they will all have an impact on how much you should borrow.
Remember, lenders tell you how much you can borrow, but you know your personal circumstances better than anyone else – it’s up to you to decide how much you should borrow. If you need support and advice, come and have a chat with us at Volare Home Loans.
Message from CAtherine
Occasionally I come across an interesting article to do with Home Loans. I thought I'd share some of these with you here.