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With Lenders rigorously assessing Home Finance applications, two common finance traps to be mindful of that may impact the amount you can borrow are:
Even if you have no debt owing at the time of application, both credit cards and using payday schemes can limit your borrowing capacity.
Finance Trap No1. Unused Credit Cards
It could be the difference between getting the home you truly want or having to compromise.
The solution – if serviceability is tight and you don’t really need the credit card, to avoid this additional servicing impost, clear and close the credit card, or look to reduce the credit limit, at least 3 months before submitting your loan application.
Finance Trap No 2 - Payday Schemes
Payday Schemes have exploded in popularity in Australia over the past few years.
Again, whilst many people use such services prudently, clearing what they borrow within the agreed terms, if there has been a pattern of using such services in the past, Lenders will assume it will continue in the future.
Lenders will review your Bank and Credit Card Statements for the last 3 months (in some cases 6 months) and add the monthly spend on such services to your expenses for serviceability purposes.
Like credit cards, this can reduce the amount you are able to borrow.
The solution – be mindful of the potential impact of using such services particularly if your debt servicing capacity is likely to be tight.
The key to a successful outcome is to plan ahead and be mindful of these two common finance traps.
To avoid disappointment and frustration the earlier you start planning the better shape you will be in when the time comes to apply for home finance.
If you are thinking about finance for the purchase of a home or an investment property and would like to learn more, don’t hesitate to give me a call