“I have checked my borrowing capacity using a calculator online and found that I can borrow $xxx,xxx – why is this not my actual borrowing capacity when I go speak to a broker/lender?”. At FHBA Mortgages a lot of our aspiring first home buyer clients have said the words to this effect.
If you’re trying to work out how much you can afford to borrow for your first home loan, then your first step will often be to go online and input your income & liabilities information in some of the several hundred mortgage borrowing power calculators that are available. Some of the advantages they serve include the following:
- You don’t have to book an appointment
- You don’t have to talk to anyone to use the calculator
- It’s quick, easy & free
Whilst these provide some guidance for first home buyers, they are far from accurate in determining how much you can borrow. It is also important to note that not all mortgage brokers/lenders will continually hassle you if you provide your details to speak to an expert, e.g. all of our FHBA Brokers will talk to you at a time that suits you and the service they provide is complimentary for first home buyers across the country. Furthermore, if you rely on the calculator alone and then go hunt for a property (without a home loan pre-approval) it is a very big risk, therefore it is important not to solely rely on the online calculators.
Determine your borrowing capacity right here, at FHBA Mortgages!
Why should first home buyers think twice about relying on an online mortgage calculator?
There are several reasons why an online mortgage calculator should not be relied upon. Four main reasons include the following:
1. Assessment Rate
All lenders use an assessment rate to determine your borrowing capacity. The assessment rate is an interest rate that includes a buffer in addition to the lenders’ standard variable rate (SVR). The assessment rate is typically 2-3% above the bank’s SVR, however, the assessment rate differs from lender to lender.
With this in mind, the online borrowing calculators will almost certainly not calculate your maximum borrowing capacity as the ‘assessment rate’ is not the same for every lender.
2. The loan term
As the majority of Australian lenders provide a maximum loan term of 30 years, hence, most online calculators will determine your borrowing capacity based on the 30 years. Generally speaking, the lower the loan term (in years) the lower the borrowing capacity as your repayments are greater over a shorter period of time.
Taking into account the fact that there are a handful of lenders that offer young first home buyers special 35 or 40-year loan terms, most online borrowing capacity calculators will almost certainly not take this into account.
3. Type of income
The borrowing capacity calculators you see online will usually only have a ‘Gross Income’, ‘Net Income’ and ‘Other Income’ field in which you can input your income details. It is worth noting that there are several types of income you may be earning when working, some of these include:
- Commission Income
- Contract Income
- Bonuses
- Allowances
- Overtime
- Penalty Rates
- Self-employed Income
- Self-employed add-backs (depreciation, interest etc…)
- Salary Sacrificing expenses or novated leases can actually increase your borrowing capacity substantially.
It is important to note that a vast majority of lenders don’t include 100% of the income amount for the income types mentioned above. Therefore, if you just plug in the entire total in the online calculators, it will likely mean that the calculator has overstated your income. Talk to an FHBA Broker to see which lender will use 100% of your income type!
4. Deductions
Did you know that if you have a HECS/HELP Debt or if your employer is currently deducting HECS/HELP Debt from your gross salary then this will need to be included as an expense and liability in your home loan application?
Most of the time first home buyers don’t include the HECS debt or other pre-tax/post-tax payslip deductions from their income until their broker/lender don’t analyse their payslips and financial information.
With the above in mind, it is a good idea to not guess which deduction should be included as an expense in the online mortgage calculator. Instead, an FHBA Broker/Coach will be able to give you expert advice in regard to which deductions will be included as an expense/liability in your home loan application.
How can I calculate my borrowing capacity quickly & accurately?
You can do it right here, through a first home buyer expert who specialises in providing credit advice to first home buyers only. Your FHBA Broker/Coach will be able to determine your borrowing capacity within 24 hours of submitting your request by assisting with the following:
- Gather some initial information (summarised) about your financial position
- Give you a quick call to discuss some of the figures (at a time that suits you!)
- Provide you with your maximum borrowing capacity and some of the lenders that are most suitable to your needs
- Assist you with a full home loan pre-approval
Simply complete the form below to accurately determine your borrowing capacity within 24 hours:
Written By,
Taj Singh - First Home Buyer Coach
