What Factors Affect The Client’s Borrowing Capacity?

When assisting a client with determining their borrowing capacity and increasing that borrowing capacity if necessary, it is important to understand the various factors that can affect your client’s borrowing capacity. 

1. Credit history
2. Deposit amount
3. Property value
4. Assets
5. Home-loan type
6. Income
7. Living expenses & debts

A client who can prove a responsible record of repayments through their credit history may find themselves with an increased amount of borrowing power. However, a less than impressive credit history can severely impact an individual’s borrowing power. 

Borrowers can prove financial responsibility by saving for a deposit of at least 20%. Brokers view generous deposits as a borrower who is capable of saving money and successfully making their repayments. In short, the larger deposit a client puts down, the more borrowing capacity they can receive. A deposit equalling less than 20% of the property value can significantly decrease a client’s borrowing capacity. 

The type of home loan your client decides to go through with affects their borrowing capacity based on the loan’s fees and interest rates. A long loan term can reduce the monthly repayments owed, increasing borrowing capacity. A short loan term can save your client money on interest fees and unfortunately decrease their borrowing capacity due to the high monthly repayments. 

A client’s income, living expenses, and debts impact borrowing capacity because brokers will account for how much an individual makes, how much they have to spend monthly on living expenses and calculate debt repayments into their borrowing power determination. An individual who relies on low-income payments, is part of a large family, and holds a fair amount of debt will have a significantly decreased borrowing capacity.