There are a number of strategies you can employ to boost your borrowing capacity to purchase a home or investment property. In general, these strategies entail reducing outgoings while raising your net income.
Avoid Debt and Eliminate Expenses
A sure-fire method is to decrease and, when possible, get rid of personal debt, including personal loans, credit and store card debt and hire purchases. The outcome is that you pay less interest, which in turn improves borrowing capacity. You also show your lender that you can control your finances and therefore be able to make your loan repayments.
If you are unable to pay off all your card debt right away, try to lower the maximum limits and merge the debt into a single card. Cards can incur annual interest rates up to 30 per cent. The consequence of this is that even a manageable card debt can dramatically lower borrowing capacity in the view of a lender.
Another way to reduce outgoings is to cut or eliminate any unnecessary expenses. Cutting your expenses on groceries, alcohol, fuel and utilities, clothing and entertainment can collectively contribute in increasing your borrowing capacity.
Raising your income while cutting down on your outgoings are also effective strategies. Getting a promotion or pay increase at work is ideal, but there are other ways. These include getting a second job, taking a flatmate or renting out a spare room in your house.
Increasing your income will also allow you to save for a bigger deposit, which will improve your borrowing capacity by allowing you to offer a higher equity when applying for a loan. With a bigger deposit, you will also drive home to your lender that you can save and potentially be able to make loan repayments.
Sort out your Taxes
Lowering the taxes you pay can also raise your net income and improve borrowing limit. If you are not yet doing this, hire an accountant to help you figure out a way to lower your taxes on personal and investment income.
If you are committed to improving your buying capacity, make a few major financial changes can bring you close to buying your dream house.
If you are looking for an accountant try talking with Michael Hart of Walker & Company Accountants. It's also worth discussing your borrowing capacity with a mortgage broker so try Justin Lindbeck of Yellow Brick Road Cardiff. I always say, "it doesn't hurt to have a second opinion".