Finding out how much you can borrow is an important step towards buying a property. Without understanding exactly what you can borrow you might be wasting time looking at properties you can’t afford.
Hi and welcome to the 30 day property journey. Over the next 30 days I’m showing you different activities that you can do to advance your confidence in property investing so that you can become a more successful investor.
Today we’re talking about finding out how much money you can borrow so that you can look at houses and start researching properties that are in your price range.
Three Ways To Find Out How Much You Can Borrow
I’m going to go through three different ways that you can do this.
1. Use An Online Calculator (Not Recommended)
You do need to be careful with online calculators because they are never exactly accurate.
Banks have analytical calculations that they use to assess how much you can borrow but when it comes to the online calculators these calculations don’t necessarily transfer over. They generally only collect really simple information about you and then give you an estimate.
That is never REAL PROOF of exactly what are you going to be able to borrow.
Things vary significantly from person to person. You may earn commissions which is going to affect your lending significantly. You may have been in your job for less than twelve months which again is going to affect your borrowing capacity significantly. Who you are and your situation will affect your borrowing capacity and the online calculators may not reflect this.
You can try these things but again I would use them as a very rough guide and I would use either method number 2 which I’m about to share with you or method number 3 in order to find your real borrowing capacity.
2. Go To Your Local Bank (Also Not Recommended)
The second method you can use it to go to your local bank (or any local bank) to speak to them about loans and to get an estimate of how much you can borrow from them.
The reason I don’t usually advise this and usually advise this method is that there are about 30 different lenders or more in the market today that could potentially lend you money. Depending on who the bank is will depend on how much money you can actually borrow.
Going to just one lender out of a total of 30 (even though it’ll give you an idea of how much that lender is willing to lend you) it’s not actually going to give you an idea of how much you could ACTUALLY BORROW against all of the other lenders.
Again, because everyone is so different and they use different criteria you really do need to understand how much you can borrow when it comes to all of the lenders rather than just one specific bank.
A lot of people think that if they go to their local bank who they have their account with they are going to get a special deal, handshake under-the-table style. But the fact of the matter is banks are so big now this is rarely the case.
To them you are just a bunch of numbers in the computer that they analyse and you are very rarely actually a person that they care about. I’m sorry to break it to you but even if your bank manager loves you and it’s a local guy that you’ve been going to for years the fact is he still needs to go through a computer program in order to vet your loan and to see if it can get approved.
Maybe there’s a little bit of leeway in there for him but really I doubt that there is going to be a lot there. So in terms of under-the-table deals and special discounts because you are a member of the bank, these instances are extremely rare and I definitely wouldn’t count on them.
3. Speak To A Mortgage Broker (Recommended)
The method that I recommend – method number three for finding out how much you can borrow is actually go and speak to a mortgage broker.
Obviously this is going to be a bit more effort because you do need to go and meet up with a mortgage broker or you can talk to them over the phone. You don’t actually have to meet them in person you can simply talk to them over the phone or you can even do everything by email if you’re really a shy person.
But I find meeting up with a mortgage broker or at least talking to them on the phone is a great way to find out what you’re borrowing capacity is.
They can look at all the different lenders in the market and help you choose a lender that is going to give you the best borrowing capacity.
You can then see what you’re borrowing capacity is across a bunch of different lenders and so you can know that with Lender A you might be able to borrow $400,000, with Lender B you be able to borrow $300,000 and with Lender C it might be $350,000 and so on.
Therefore you can get an average and an idea of what you’re likely going to be able to borrow.
A mortgage broker will also be able to take into account things like how long you have been in your job, how you earn your money whether it’s in commissions or whatever.
If you are self-employed you especially need to go to a mortgage broker because they will be able to advise you on whether you should go for a standard loan using your financial reports for the last two years or whether you should go for what’s called a low doc loan where you basically don’t have to provide as much documentation. There are different types of loans and so it’s really important to speak to a mortgage broker and to get an idea.
How To Find A Mortgage Broker
So if you don’t have a mortgage broker, the easiest way to find them is to simply go into Google and type in mortgage broker and then put in your local area.
If you want my mortgage broker to get in touch with you (Brad the Broker who I personally use). Well he deals with everyone all over the country.
Learn more about Brad and fill out the form and request a call for him or see his contact details and call him yourself. If you let him know that Ryan from On Property sent you that I will get a referral fee from Brad but that’s not going to affect your cost.
Mortgage broker fees are almost always free. I actually personally use Brad so I’m starting to send business to him.
Beware Of Banks Checking Your Credit File
Another thing you need to be aware of when visiting your local bank is for them to check how much you can borrow. They’re probably going to do a check against your credit file. The more checks you have against your credit file the harder it will be for you to get lending.
By going to a mortgage broker they can tell you roughly how much you can borrow without actually checking your credit file which means your credit file stays cleaner and it’s going to make it easier for you to get a loan. So that’s why I always recommend method number 3 of going to see a mortgage broker.
So there are your 3 methods for finding out how much you can borrow. You can use the online calculators but obviously take them with a grain of salt. You can go and visit your local bank but again take that with a grain of salt.
Once you know how much you can borrow you can begin moving forward, start looking at how much of a deposit you need to save, you can start researching properties in your area or researching properties in the areas that are in your price range.
Having this knowledge is just going to equip you to do more research as you are more in tune and in line with where you’re going financially and what you can reasonably achieve. There is no point in you looking at multimillion-dollar mansions if you can only borrow $200,000.
Let’s stay within our means and stay within what is realistic because that at the end of the day is what’s going to move us towards our financial dreams? It is all well and good to inspect million-dollar properties and dream of one day owning it but that’s probably not going to move you that much closer to your financial dreams but looking at properties that are in your price range that you could afford that’s going to be really helpful.
Tomorrow we’re going to be talking about how to work out what you could afford. So we know how much we can borrow but now we need to work out how much we can actually afford and we are going to be covering that in tomorrow’s episode.
Today’s episode is brought to you by my ebook The Essential Guide To Buying Your First Property in Australia – the 21 steps to buying your first property with checklists and worksheets to help you through every step of the process. Kill overwhelm and be empowered to buy your first property in Australia. It’s currently 75% off and it is an awesome resource.
So until tomorrow remember stay positive.