03 Nov 2022

Does Rent Affect Your Borrowing Power?

Borrowing Power

In short, yes, rent has the potential of affecting loan applicants borrowing power. Most of an applicant’s daily expenses have the potential to affect their borrowing power negatively. This is because lending specialists and mortgage brokers will use an applicant’s in-depth financial information to calculate their borrowing power. 

Borrowing power refers to the amount of money a lender approves a loan applicant to borrow. Lenders rely on calculating an applicant’s borrowing power to determine their risk status and ability to adequately repay the funds being loaned. A high-risk borrower indicates an applicant with a low credit score and poor financial history, while a low-risk borrower indicates an applicant with a high credit score and good financial history. 

When calculating applicants borrowing power, lenders look at a wide variety of elements, including the following examples:

  • The applicant’s income, debt, and amount of dependents
  • The loans terms, rates, and amount
  • The loan deposit amount
  • Any assets currently owned by the applicant
  • The amount of debt an applicant currently owes
  • The applicant’s credit score and financial history

Applicants can potentially increase their borrowing power by saving for a larger loan deposit, consistently making debt repayments, decreasing high credit card limits, and working on raising their credit score. 

If you would like to learn more about borrowing power or are ready to apply for a home loan, reach out to the professional Mortgage House lending specialists for more information and specialised loan assistance.

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