Have you been refused a loan and concerned about looking elsewhere?
While there are a number of reasons you may not be eligible for the home loan you need, one may be that you aren’t seen as “serviceable”.
This, essentially, means that you are not deemed able to pay off the loan due to calculations that say you have too many other potential areas of debt that needs repaying or daily costs.
In the meantime, there are other things you can do to increase your serviceability and secure the loan you want.
Firstly, see if you are calculated as being more serviceable elsewhere. An understanding of different lending policies, which a good broker may be a help with, can assist. You can read this article here about choosing the best mortgage broker for you. Different calculations are used by different banks and lenders.
PAY DOWN DEBT (AND AVOID TAKING ON MORE!)
If you can, it’s time to supercharge your debt repayments and clear them as quickly as possible. This is particularly good for buyers who are not intending to get into the market for some time.
Avoid upgrading your phone to a new expensive plan and taking on increasing levels of debt, all of these additional costs will decrease your serviceability (and your borrowing power).
You might also consider putting off that extra child until you’ve purchased – children, due to the high level of expenditure required to raise them, are seen in the “outgoings” category. Consolidating debt and spending some time paying this down may be one of the most important options here.
REDUCE CREDIT CARD LIMITS
High credit card limits affect your serviceability – even if you haven’t used them to their limits and do not intend to. Reduce them as best possible. You can increase them after you have your loan.
DECREASE OTHER OVERHEADS WHERE POSSIBLE
Yellow Brick Road’s Mark Bouris recommends reducing your overheads, as well as avoiding taking on more.
“Fancy car leases, big smart phone plans and cable TV charges can reduce your net income and affect your serviceability,” he says as one of his 20 tips to ensure you get your loan.
You could consider consolidating short-term debt into longer term debt to reduce your monthly repayments.
ENSURE ALL YOUR INCOME IS TAKEN INTO ACCOUNT
Usually, tax returns and payslips are used to determine your income. If you receive substantial sums in bonuses or commissions each year that significantly lifts your overall earnings, and this hasn’t been addressed by your broker, then you want to bring it up.
SPLIT DEBT EVENLY WITH YOUR PARTNER
You may be purchasing together, but if the property is to be secured in your own name then make sure you have evenly divided up liabilities between both of you.
Noting down all the debt and outgoings as your own, rather than as 50/50 in your relationship, will significantly lower your personal borrowing capacity in the eyes of a lender.
This article first appeared in propertyobserver.com.au