Explained: How Much Can I Borrow For An Investment Property?
Figuring out your borrowing capacity is the first step on your investment property journey. Knowing your borrowing capacity allows you to begin to lay your foundation for financial freedom.
Here at Motivate Property Group, we’re here to help you figure it all out. As property investment experts based in Perth, we can take you through everything from lending criteria to available home loan products based on your financial circumstances and property goals.
Understanding Borrowing Capacity
Each lender assesses your buying capacity differently, relying on a number of factors to determine your financial health, including:
Income - Lenders look at your employment status as well as current and future income streams. The more you earn and the more secure your income streams, the more borrowing capacity you have.
Current assets - Lenders also look at how much money you have in the bank as savings along with other assets, including equity in any existing property you own.
Living expenses - Lenders review living expenses as well as any business liabilities that may impact your financial circumstances.
Commitments - Lenders look at current debts, credit cards, expenses and other financial commitments that could impact how much you can borrow.
Credit history - Lenders look at your credit score to determine whether you've had any trouble with borrowing or making repayments in the past.
Lenders operate under regulatory guidelines to ensure ethical and professional standards are upheld so buyers do not borrow loans that can’t be repaid or cause financial hardship.
Calculating Your Borrowing Capacity
Of all the above factors, your income is the most important. Calculate your monthly income and look for an appropriate property and mortgage product based on what you can afford. A general rule is to not let your repayments exceed 30 per cent of your tax after salary.
A Loan-to-Value Ratio (LVR) is another way to show how much money you can borrow compared to how much the property is worth. For example, if you're buying a house for $100,000 and borrow $80,000, your LVR is 80%. The lower the LVR, the less risky it is for the lender.
Boosting Borrowing Capacity
There are a number of ways to boost borrowing capacity.
Explore joint loan applications, where two or more people apply for a loan together. This may aid your income assessment.
Reduce expenses and existing debts before applying for loans.
Take steps to enhance your credit score and increase your income.
Consulting an expert in property investment strategy can also help you find ways to increase your borrowing capacity and meet your unique goals.
Whether you’re a first time buyer or an experienced investor, the experienced team at Motivate Property Group is here to help you on your journey to financial freedom with tailored strategies for property investment success. Book a consultation with our experts today. Feel free to reach out to us online.