If you need to borrow money, it can be helpful to understand how lenders assess your financial situation and how this will affect how much you’re able to borrow. In order to help you understand the basics of your borrowing power, Through the course of these article we have taken out time to discuss 7 Ways to Boost Your Borrowing Power.
What is your borrowing power?
Checking the total amount of money you can borrow will let you know what your borrowing power is before shopping for lenders. The total amount depends on various factors.
A lender will want to know if you’re in a financial position to pay the monthly payments for any major purchases such as buying a car or refinancing a home, not just your current expenses.
If you total up all your income sources and your debts, and then subtract your debts from your income, you can get an idea of how much money is left in your budget to cover loan payments.
You may also have to consider other factors before calculating your borrowing power. These variables will differ depending on the type of loan you’re applying for.
How to Increase Your Borrowing Capacity
Each lender has a different borrowing limit for you, and this limit may be increased as well, which would expand your selection of available homes. Here are ten strategies for borrowing more from your lender
- Know your credit score
When applying for a mortgage, your lender will check your credit score. Knowing your score can help you determine whether you’re in good financial health and if you’ve had any credit issues. The lenders are generally more willing to deal with thin files, e.g. limited credit history. They tend to prefer that to a poor credit history due to unpaid loans and so on. A few services allow you to check your credit score for free twice a year. You can then begin working toward improving your score.
- Reduce debts
Reducing your debts can significantly increase your borrowing power. Debt consolidation is one way to do this. It may also be possible for you to use the equity in your home or other assets as collateral for a loan. You might want to consider having a credit card with a R0 balance and only using it when necessary.
- Choose the right loan product
Choosing the right loan product is critical for achieving your borrowing goals. There are many loan types and features, so it’s important to understand how they work. For example, a mortgage may be the best option if you want a home equity line of credit (HELOC) or if you are buying an investment property or second home.
A business loan may be a better option if you need debt financing for your small business or equipment purchase.
- Stay current on bills
Your payment history accounts for 35% of your credit score, which makes it the most important factor. Paying your bills on time will prevent you from damaging your credit score.
According to federal law, creditors can’t report you as late until you’re at least 30 days past the due date. So if you think you’ll pay after that point, call your creditor and tell them what your situation is. On occasion, lenders offer a lenient period so you can be late on the payments without hurting your credit.
- Shop for a better interest rate.
One way you can increase your borrowing power is by shopping around for a better interest rate. You can find out what the current rates are by searching online or calling your bank and asking them. If the bank doesn’t offer you a lower rate, ask them if they know of any other banks that do. If they don’t have any ideas for you, ask if there’s anything else they can offer you to help with your situation.
- Consider refinancing
Refinancing your loan with a new mortgage can be an effective way of increasing your borrowing power. This is because refinancing is essentially like getting a new loan and you will have the opportunity to take on a better interest rate which can save you money in the long term.
- Get an extra job
Boost your borrowing power by getting an extra job or side hustle. This way you’ll be able to show the bank that you have a history of being able to maintain debt. You could even take on a part-time gig like babysitting, dog walking, or delivering pizzas. Once you’ve put in the hard work and shown them your earning potential is high, they’ll be more likely to loan you money.
How to calculate borrowing capacity
If you’re shopping around for a home loan, a borrowing power calculator is a great tool to help you determine how much you can borrow. Keep in mind that a borrowing power calculator will only give you an estimate.
Conclusion
The key to increasing your borrowing power is by building a credit score. You can do this by paying your bills on time and avoiding high risk behavior like gambling or excessive spending. Build your credit score and you’ll be able to use it in the future when you need it most. There are also some other steps you can take in order to increase your borrowing power. For example, if you have an emergency fund, that will show banks that you’re responsible with money.