All Topics / Finance / How to determine borrowing power?

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  • Profile photo of P@tty[email protected]
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    @p-tty
    Join Date: 2012
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    Good morning,

    Is there a way for me to accurately determine my borrowing power without applying to the banks?

    I have been learning as much as I can over the last 4 months and I have just started saving for a deposit this year. I am also more clear about my goals and would like to start planning my first purchase with these goals in mind, but I would like to be more certain as to how much I can borrow.

    Thanks in advance.

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    Hello and welcome aboard.

    It sounds biased but the obvious answer is to work with a broker.

    Unlike a bank, a broker will have access to dozens of lenders – and different lenders have different ways of assessing your borrowing capacity.

    Most business is conducted online these days so if you're happy with using email/phone you can use any broker anywhere i the country.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of kong71286kong71286
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    @kong71286
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    InfoChoice has a Online Calculator that you to determine how much money you can borrow, and allows you to alter variables such as the loan term, interest rate, income, and expenses

    Profile photo of P@tty[email protected]
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    @p-tty
    Join Date: 2012
    Post Count: 7

    Thanks Jamie – Can brokers still do this without applying for a pre-approval? I don't want to apply for anything yet, just work out the possible strategies/options with what I can borrow.

    Also, how would i work out what i can borrow after my first purchase, so i can move forward? Is this something i can also sit down and work out with a broker when I am ready to start? Should the accountant be involved with this part?

    Thanks Kong71286 – are these fairly accurate? Do they consider most lenders? From what I understand lenders may lend different amounts based on the same circumstances. ??

    Thank you

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Hi [email protected]

    Yes Brokers do this all day long and often we work with a client 6 months before they are read to purchase.

    Have to disagree with Kong on this one as the online calculators are useless and really have no bearing or understanding  of some of the finer points of Credit.

    Sure they may give you a broad brush stroke but nothing else.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    Profile photo of TheFinanceShopTheFinanceShop
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    Best to speak to your banker and broker about your specific borrowing capacity – never rely on online sites as they do not paint the correct picture for you to build your strategy. 

    Other things to consider is deposit amounts – how much to use, etc.

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
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    Profile photo of P@tty[email protected]
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    @p-tty
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    Thanks for all the responses!!! smiley

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
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    Thanks Jamie – Can brokers still do this without applying for a pre-approval? I don't want to apply for anything yet, just work out the possible strategies/options with what I can borrow.

    Also, how would i work out what i can borrow after my first purchase, so i can move forward? Is this something i can also sit down and work out with a broker when I am ready to start? Should the accountant be involved with this part?

    Thanks Kong71286 – are these fairly accurate? Do they consider most lenders? From what I understand lenders may lend different amounts based on the same circumstances. ??

    Thank you

    Yes, a broker will be able to give you an indication of your borrowing capacity without submitting an app.

    They will also be able to run some scenarios for you based on your longer term investment goals – including your ability to purchase the second property.

    Agree with Richard re the infochoice calculator – it's a very simplistic calculation that isn't going to be very useful for investors.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Profile photo of wilko1wilko1
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    @wilko1
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    If you send me a PM with your email i can send excel files for every major bank that calculate serviceability both payg and self employed. It has been so valuable to me being able to determine if i can afford something before i make offers.

    Its also useful in putting in different scenarios. ie changing rents etc (i don't think im suppose to have it, but somehow ended up with it)

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    Hi Wilko

    Do you get updated calculators as banks change policy/serviceability criteria? This happens quite frequently.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of P@tty[email protected]
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    @p-tty
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    PM sent. Thanks Wilko smiley

    Profile photo of propertyinvesting100propertyinvesting100
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    @propertyinvesting100
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    I am also interested in finding banks that would service my individual circumstances and requesting if I could be emailed a copy of the  excel files for every major bank that calculates serviceability both payg and self employed. It would be most kindly appreciated. My email address is  [email protected] if you are able to. 

    Kind Regards

    Mia

    Profile photo of wilko1wilko1
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    I have 2007 ones that i have compared at Nab westpac and cba that they are still 99% the same. The only difference with cbas and nabs new calculator is they have more data slots to enter in available loans. Ie i think they only have about 10 in this one but in thier ones they have 20 or so. So you can imagine once you get a credit card a car loan couple home loans you run out of space but you can always group similar debt ie all home loans at 5.5% into one big loan so you have enough space

    couple quick rules to remember if you self calculating is even though they are the exact ones used.

    You still have to remember that banks will add 2% buffer to any new debt you wish to add. So when working out if you can afford it work on 2% interest higher then standard (ie 7.5% instead of 5.5% even if your loan will be for 5.5%)  for any new debt

    You have to get your dependents right on the calculator if you have kids add it in. Some changes have occurred with dependents but i have doubled checked this across their new calulators using the new standard of livings. 

    Overall i would say they are most useful as a very close guide. You could use them to figure out ballpark figures to within 10k-50k borrowing capacity. ( mine are usually spot on, the last 5 houses i have bought i bought without subject to finance  because i knew without going to a broker/bank that i was within my borrowing capacity once i add the rent etc)

    Self employed income is in another tab. remember you could get add backs etc

    there will be a LVR debt % serviceability somewhere on the page.

    if  your below 50% usually the loan will be approved straight away.

    above 50-65% gets referred to credit etc

    over 65% gets declined or you'll need direct approval from someone higher up. and will be situational dependent. things like you have bridging finance, contractors paid in lump sums.

    finally use them as a guide only to plan or map out how a individual property would or could fit into your portfolio and thus work out a financial plan or even to goal set.

    ill email them out now

    Profile photo of Mick CMick C
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    @shape
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    wilko1 wrote:

     the last 5 houses i have bought i bought without subject to finance  because i knew without going to a broker/bank that i was within my borrowing capacity once i add the rent etc)

    Just want to say for any Newbie reading ^ this can be very dangerous!

    Just because you can "Service" the loan doesn't mean you will get the loan approved! 8/10  loans that are rejected by the banks are not for "serviceability issues" i mean before a file is submitted to the bank ( ie from pre-approval to approval) most people will know their borrowing limits already; so literally  there are 101 another reasons why a file can be rejected and serviceability is just one small part.

    SO overall, yes find out your borrowing capacity but never buy without subject to finance or with a cooling period JUST because you can service the loan….you need to make sure the bank is going to APPROVE your loan!

    P.s wilko1 good post by the way, very detailed. 

    Regards

    Michael 

    Mick C | Shape Home Loans
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    Profile photo of wilko1wilko1
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    @wilko1
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    Ok yes i prob should of added in that I DONT RECOMMEND that for beginners.

    Ill just add that for the top part of most of the spreadsheets.

    most people live in 1 home

    and have 1 ppor

    and if you click on the negative gearing tab to take  you into were you can determine if you own properties 50 :50. tennants in common, putting 99% of the gearing on the highest income earner and 1% on your partner etc.

    Personal loans even if used to 100% wont be counted as negative gearing

    neither credit cards or car loans. so tick NO for those boxes

    Profile photo of wilko1wilko1
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    @wilko1
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    even if you rent or live with parents you still live in 1 home.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
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    Wow I wouldn't rely on an Excel spreadsheet to work out serviceability for any lender let alone the big 4.

    As Michael mentioned with all 4 using some form of credit scoring serviceability is the least of your concerns.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of wilko1wilko1
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    @wilko1
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    If I said excel spreadsheet I meant each banks individual program (although dated) they use which in its current format loads up in excel. 

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    wilko1 wrote:

    couple quick rules to remember if you self calculating is even though they are the exact ones used.

    You still have to remember that banks will add 2% buffer to any new debt you wish to add. So when working out if you can afford it work on 2% interest higher then standard (ie 7.5% instead of 5.5% even if your loan will be for 5.5%)  for any new debt

    No, it varies quite a lot amongst banks – there's no 2% buffer rule that applies across the board. Most banks treat OFI liabilities differently.

    Use these with caution – you don't want to incorrectly input information into a 6 year old spreadsheet and then have the lender knock the deal back.

    It's about what you can afford as well – not what the the bank is willing to lend.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of DaOneDaOne
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    @daone
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    As some people like Qlds007, Jamie have suggested talk with a mortgage broker it is not going to cost you anything. In some cases you will get some or a lot valuable information to help you in you journey to buying a property. this is not going to cost you anything, 

    DaOne | Oras Finance - Your Local Mortgage Broker
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