How to Boost Your Borrowing Power
Boost Your Borrowing Power by up to 30%
What is Borrowing Power?
Borrowing power is the amount a lender is willing to let you borrow for a home loan, based on factors like your income, expenses, debts, and the lender’s assessment criteria. For first home buyers, borrowing power plays a critical role in determining what kind of property you can afford.
While your financial situation is key, external factors like the serviceability buffer — a safeguard for rising interest rates — can significantly limit how much you can borrow. Thankfully, there are ways to boost your borrowing power and get closer to owning your dream home.
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Understanding the 3% Serviceability Buffer
To ensure borrowers can handle potential interest rate increases, APRA (Australian Prudential Regulation Authority) requires lenders to apply a 3% serviceability buffer.
Here’s how it works:
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If your home loan has an interest rate of 6%, the lender will assess your ability to repay the loan as if the rate were 9%.
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While this adds a layer of financial protection, it also reduces how much you can borrow, limiting your purchasing power.
Some lenders, however, offer alternatives to the 3% buffer, creating opportunities to borrow more.
1. Choose the Right Lender
Not all lenders use the same approach to borrowing power. MyFirstLoan.au works with non-bank lenders to provide innovative options to help you overcome borrowing limitations:
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Variable Rate Loans: At MyFirstLoan.au, we partner with non-bank lenders rather than major banks, allowing us to apply a reduced 2% serviceability buffer. This adjustment can potentially increase your borrowing power by up to 10%.
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Fixed-Rate Loans: With our 5-year fixed-rate loan, the 3% serviceability buffer is completely removed, potentially boosting your borrowing power by up to 30%.
Choosing the right lender can be a game-changer when it comes to securing your dream home.
2. Pay Down Debt
Lenders assess your debt-to-income ratio when calculating borrowing power. Lowering your debts can improve this ratio:
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Clear Credit Card Balances: High credit card limits, even if unused, can reduce borrowing power. Lower limits or pay them off entirely.
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Consolidate Personal Loans: Simplify your repayments and reduce monthly commitments with debt consolidation.
3. Save Regularly
Demonstrating a consistent savings habit shows lenders that you’re financially disciplined. This can:
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Help you save for a larger deposit, reducing your loan-to-value ratio (LVR).
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Potentially allow you to avoid additional costs like Lenders Mortgage Insurance (LMI).
4. Improve Your Credit Score
A strong credit score is another factor lenders consider when calculating borrowing power. Steps to improve it include:
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Paying bills and loans on time.
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Avoiding unnecessary credit applications.
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Regularly checking your credit report to correct errors.
5. Reduce Living Expenses
Lenders also evaluate your living expenses. Cutting unnecessary costs can improve your financial profile:
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Cancel unused subscriptions.
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Track your spending to identify areas for improvement.
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Meet our coaches
Why Choose MyFirstLoan.au?
At MyFirstLoan.au, we specialise in helping first home buyers navigate borrowing challenges. Our tailored loan options, reduced serviceability buffers, and flexible terms ensure you can maximise your borrowing power and secure your dream home.
Take the Next Step
Don’t let borrowing power limitations hold you back. Discover how MyFirstLoan.au can help you borrow more with innovative loan solutions and expert guidance.
Contact Us Today to explore your options and take the first step towards homeownership
Your Guide to Affordable Homeownership
1
Meet Your Coach
Let us pair you with a dedicated home loan coach. They’ll provide guidance to help you through the home buying process.
2
Create a Savings Plan
Your coach will estimate your borrowing power and provide budgeting advice, made easy with our MFL Success Tracker app, so you can save confidently for your new home.
3
Get Your Loan
When you're ready, apply for and secure the loan you need to purchase your first home.
