With interest rates at record lows and property values experiencing steady growth, property investment is now one of the most popular ways to build wealth for your future and retirement. But getting the financing in place to fund your wealth building plans can be a hurdle. So how can you increase your borrowing power to help you take advantage of current opportunities? In this article we take a look at some of the things that banks and lending organisations take into consideration before approving your investment loan.

1. Minimise your existing debts
One of the first things that lenders look at when assessing you for an investment loan is the level of debt that you are already maintaining. In addition to your existing home loan, they also take into consideration any other debts you may have including personal loans, car loans, student loans, credit cards, store credit financing, outstanding bills and so on.  The more of these you have on the go, the more impact it will have on your credit score with a lender.

By minimising your debts and the number of repayments you have to make, you can help to increase your borrowing capacity when the lender makes an assessment.  If possible, it’s a good idea to pay off as many of these debts as you can before you submit an application for your investment loan. Another strategy might be to roll all of your smaller debts into just one personal loan or a loan with lower interest rate than credit or store cards, for example.

If you have an existing home loan, you might already be happy with the interest rate – so it’s worth finding out if you can roll your debts into your existing home loan to free up your borrowing capacity in the future. Talk to us and we will help you to determine if this is an option and if it will have the desired effect on your capacity to borrow for an investment property.

2. Minimise your outgoing expenses
Lenders also take a look at your expenses and use these to make an assessment of your capacity to repay a loan. You may think that this won’t be an issue with an investment property because your tenants will be paying rent to help cover the mortgage expenses, but this is not the case. Lenders take into consideration the worst case scenario – what will happen if your investment property remains vacant for long periods of time? How will you make your loan repayments then?

Take a look at your regular outgoing expenses and do everything you can to minimise them. Do you really need that expensive gym membership? Could you make do without that second car? Could you cut back on your pay TV subscriptions? Most of us are regularly paying for luxury items we don’t really need, so be ruthless with your budgeting strategies.

3. Reduce your excess credit limits
Another thing the lenders take into consideration before approving your investment loan is your capacity to get into more debt. That means that your credit cards could be reducing your borrowing capacity, even if you have a zero balance.

For example, if you have one credit card with a $20,000 limit and two more with $10,000 limits, this will have a considerable impact on the amount of money you can borrow – even if you owe nothing on those cards. In some cases, a lender could take these credit card limits to mean that you have a potential debt of $40,000 against your name. It might not seem fair, but they will often calculate what you would have to repay if you actually used up those limits and add that to your outgoings.

In order to increase your borrowing capacity, it is therefore recommended to cancel the extra credit card and loan facilities that you don’t really need. You’ll also save money on annual fees and this could help to minimise your outgoing expenses, as mentioned earlier.

4. Keep your financial records up to date
One of the most common reasons why property investors find their borrowing capacity is limited is because they don’t have up-to-date financial information to prove their income and financial position to the lender.  Your tax return is the best proof of your financial position and earning capacity that you can provide to a lender, so it is very important to keep them on file.

In many cases, lenders only ask for three or four payslips or bank statements as your proof of income, but this may not provide an accurate view of the bigger picture. If you are self-employed, or have a low base salary but earn commissions or bonuses for example, a few payslips or statements alone will not accurately convey what you actually earn and this may reduce your borrowing capacity or make you ineligible for the best interest rate deals.

You may also have additional income from existing investment properties, stocks and shares, or even a border in your home. To be sure the lender can make an accurate assessment of your income and earning capacity, you need to be able to provide plenty of documentation about these other sources of income as well as your regular job.

5. Access the equity in your existing property to increase your deposit
If you already own a home or some investment properties, accessing the equity can help you secure finance for another property purchase. Your equity is the difference between what the house is worth on today’s market, and how much you owe against it.

Put simply, your property’s equity will increase both as you pay off your mortgage and as the property’s value grows. For example, if your $500,000 property increases in value by 10% over the two years you own it, that’s an extra $50,000 in equity – and you can also add in any reduction you have made to the mortgage from your repayments.

Depending on your financial circumstances, it may be possible to refinance your mortgage to access that money. This will help to increase your deposit amount for your investment property and also help to increase your borrowing capacity. Just ask us and we’ll help you determine if this is the case.

In order to access the equity in your existing property, you will first need to obtain an accurate valuation from a reputable valuations expert. We can help you with this so don’t hesitate to ask us for assistance! The lender will also obtain a proper valuation, so this is an important step when you are considering accessing your equity.

You might also want to consider ways to add to the equity in your existing property by making improvements or renovations. This can be a fast way to increase your borrowing capacity so you can get into your next investment sooner.

Don’t wait to get started with your property investment plans!
If you’re thinking about making a property investment, why not come and talk to us about strategies to increase your borrowing power before you start the buying process? We’re here to support you in your ambition to use property to responsibly build wealth for your future and retirement, so give us a call today.

When you’re buying a property, careful research is the key to success. From making the initial decision about how much you can afford to spend, right down to locating the right property and making your purchase, doing your research to make sure you’re fully informed will help to ensure you make a profitable investment that will be a real financial asset for you now and into the future. But where do you start? In this article we outline the research steps you need to take when climbing on to the property ladder.

Property Research

Step 1 – financial research
The first step in buying a property is setting your budget and organising financial approval for a home loan. Researching how much you can afford to spend is as simple as listing all of your assets – including the cash you may have on hand for a deposit – and working out your expenses. This will show you how much you can afford to spend on a deposit and home loan repayments.

Once you’ve completed this basic research of your financial position and decided your budget, it’s time to talk to us – your local mortgage broker. We’ll sit down with you to discuss your financial position, your goals for the future and then help you choose a mortgage product that’s right for you. We’ll then research the home loan market for you and select the loan options that best suit your objectives and give you the best rate.

Step 2 – What type of property do you want to buy?
Once you have your budget firmly in mind, it’s time to decide what type of property you can purchase. Obviously the amount of money you have to spend will influence what type of property you look at purchasing, but there’s a lengthy list of options and you need to do some research to help you choose the one that’s right for you.

Are you interested in buying an apartment, a unit, a house or perhaps a commercial property? If you are purchasing the property as your own home the decision will be influenced by your personal needs. But if you are purchasing the property as an investment, then you may consider all property types as suitable – as long as they give you the return on your investment that you need for it to be financially viable and profitable.

Step 3 – Where do you want to invest?
If you’re buying a property as your own home, this step will be about researching a suburb that best suits your personal lifestyle and the future needs of your family. But if you’re buying an investment property, it pays to look further afield and consider the locations that have good capital growth potential and will give you the best return on your investment.

Saavy investors spend time researching to find areas with capital growth potential and then focus on finding properties in these areas that are within budget. This requires access to good property market data that gives you figures on the latest trends. If you need help accessing this kind of information, then just ask us.

Research suburbs that are showing steady capital growth, and suburbs adjacent to ones that are already popular. Don’t be afraid to consider properties in other capital cities that may have better capital growth potential than the city in which you live. If you are buying an investment property, consider locations that will be popular with tenants – suburbs with good schools, public transport links, shopping centres, amenities and access to the CBD.

Step 4 – Locate the property and research its viability
Once you have an idea of your budget, the type of property you want to buy and general locations you may want to invest in, you can start researching to find suitable properties to inspect.

If you’re purchasing an investment, you will need to research each property very thoroughly before you decide on one to purchase. First you’ll need to determine the right price for the property so that you don’t pay too much. You can do this by researching the sale prices of comparable homes in the area to see how yours stacks up.

Next you’ll need to do some research with real estate agents to determine what kind of rental return you can expect on the property you have chosen. It’s important to determine whether or not the rental return will cover all the expenses – including the mortgage – so that you can work out if it is a financially viable investment for you and suits your budget and investment goals.

If you’re looking to purchase a property soon, this guide will help you get started on your essential research. Of course, you can get started on the first step of researching your budget and organising pre-approval for your home loan right away, just by talking to us.

We’re here to make sure you get the best home loan product and rate available for you, considering your personal financial situation and goals. There are many competitive home loan products available on the market right now, so it’s a good time to get started. Give us a call today.

At Element Finance Fremantle, we ask 100% of our clients what they think our Mortgage Brokers can do to improve their service for them and for all their clients. It is one of the most important ‘elements’ of the process, ensuring we are always improving our systems and service. We really value constructive feedback although it is enjoyable to receive testimonials as glowing as this from Candice last week:

“Mike was extremely professional and met our every need. Will definitely be recommending element finance to others in the future.”

It lets us know we are on the right path and definitely doing the right thing. If you were ever asked, how would you review YOUR bank or broker’s service?

Excellent Service in Fremantle

CBA have this week released their economic forecast expecting interest rates to rise a full 1%  over the next 18 months. With the lowest rates home loan rates you have probably ever seen, is it time to FIX IT? Call Element Finance Fremantle today to discuss the benefits.

https://www.commbank.com.au/content/dam/commbank/corporate/research/publications/economics/forecasts-economic-financial/2014/270614-Forecasts_EcoFin.pdf

Fix your interest rate?

At its July meeting today, the Reserve Bank of Australia decided to maintain the official cash rate at 2.5 per cent, as predicted by most market analysts. Keeping the cash rate unchanged is in line with the RBA’s intention to create a period of stability on interest rates.
At the start of the new financial year, we can usually expect Australia’s property market to slow down for the winter months ahead. However, the period of stability on interest rates has created a lot of activity in the housing market, with auction numbers in most capital cities remaining high throughout June.
Analysts say that the continuing property market activity is being led by investors who are taking advantage of the low interest rate environment to boost their portfolios. However, the high numbers of properties remaining on the market during this traditionally quiet time of year means there are plenty of opportunities for those looking to make a purchase.
Our loan market remains very competitive, with many lenders still introducing low fixed rates, along with great variable rate options. First home buyers, as well as those looking to refinance and invest, can expect some great deals ahead of the predicted rise in interest rates later this year or early next year. If you’d like to find out how to take advantage of the current low rates to reach your goals this financial year, then talk to us today.