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How do I increase my borrowing capacity so I can buy a house?

Source: mohamed_hassan from Pixabay

You want to buy a house, but you aren't sure if the bank will lend you enough. Mortgage broker Jerry O'Brien gives advice on how you can increase your borrowing capacity.

'May PERAan' is SBS Filipino's podcast series featuring financial experts seeking to answer the most common questions about money and finances.

 

"It's normal to be anxious [about the amount of money you can borrow from the bank]. A home is one of the biggest purchases we can make in life," mortgage broker Jerry O'Brien shares.

He shares the points you need to consider when you're looking into making sure you optimise your borrowing capacity.

 

Listen to the podcast

Paano ko mapapataas ang aking borrowing capacity para makabili ako ng property?
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Highlights

  • There are three main points banks assess you on.
  • The bank assesses you on the money that goes into a household and the money that goes out of it.
  • If you still aren't lent as much money as you hoped, you can either find another source of income or search for another location.

What can work for you

Work tenure

If your employment history is sold and if you have been working in a particular industry or company for years, the bank will be more likely to give you a substantial home loan.

"If you suddenly shift or often shift from one industry to another, you'll more likely be on shaky ground when it comes to getting a good loan," Jerry says. 

Rental history

"When the bank sees that you can pay an 'x' amount of rent every week and you always pay on time, it's a positive for the bank."

Genuine savings 

"This is really one of the requirements when it comes to home loans. You need to show that you yourself can contribute to the purchase of the home. Usually, the bank requires 5%. Some require 10%."

What the bank assesses you on 

"The bank looks into the money that comes in and the money that goes out from your household. This is where your borrowing capacity is based."

What are considered are how many in the household work; other sources of income aside from the jobs of the household members; their liabilities which can affect their borrowing capacity such as credit card debt, car loan and expenses.

"Banks look at the limit of your credit card. It doesn't matter if you use it or you don't. If you can lower your limit or give up your credit card, it will help a lot. As a rule of thumb, the bank looks at the limit and multiplies it by 6 or 7 and that's what is deducted from your borrowing capacity."

If the bank doesn't give you the amount you're hoping for 

Jerry encourages you to seek the help of a financial expert or mortgage broker.

"You don't have to ask only one bank for a loan. You can ask several. That's where you need to face the possibility that you might not really be able to get the amount you want.

"Your income might not be enough to buy a home in a particular area. You might need to look at the next suburb or two suburbs down where it could be cheaper. If it's possible, you can also look into finding another source of income so you can afford the location you want."

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Disclaimer: This article is for general information only. For specific financial advice, you should consider seeking independent legal, financial, taxation or other advice to check how the information here relates to your unique circumstances.

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