Having good borrowing power but limited savings can present a unique challenge when purchasing a property. In Australia, where securing a home loan or mortgage is a common financial goal, individuals without significant savings often wonder how to make the most of their borrowing capacity. This article provides practical strategies for leveraging borrowing power effectively and navigating the hurdles of limited savings.
Assess Borrowing Power
The first step is to assess your borrowing power accurately. Borrowing capacity is purely a calculation of your income against your spending, including your debt position. You can do this by filling out our contact form. We help you understand your borrowing capacity and the potential interest rates lenders may offer you.
Prioritise Financial Goals
When you have limited savings, prioritising your financial goals becomes even more critical. Determine what matters most to you in the short-term and long term. If owning a home is a priority, we will help you set up a budget to increase your deposit to the levels required so that you can purchase a property.
Create a Budget
Crafting a budget becomes paramount in a scenario with limited savings. Carefully evaluate your income, expenses, and savings targets. Allocate funds towards savings while finding ways to optimise your spending. By tracking your progress regularly, you can identify areas where you can cut back and adjust to reach your saving goals faster.
Build an Emergency Fund
While limited savings may make it challenging, building an emergency fund is crucial. Start by setting aside a small portion of your monthly income and gradually increasing it over time. Look for ways to reduce unnecessary expenses and divert those savings towards your emergency fund. A financial safety net will provide peace of mind and protect you from unexpected costs.
Take Advantage of Government Support
If you want to enter the property market sooner, consider using the government support available to first home buyers. The Australian government offers qualified first home buyers the First Home Guarantee (FHBG). It enables qualified first home buyers to buy a home with a deposit of little as 5 per cent of the property price without paying Lenders’ Mortgage Insurance.
Each state government also provides specific support for first home buyers. For more specific information on NSW government support, read our article on first home buyer schemes.
Consider Using a Guarantor
Using a guarantor comes with many benefits. Suppose you have a family member that has equity in their property. You may be able to borrow against it with their permission to help meet the shortfall in your deposit. Having a guarantor means purchasing a property with little to no deposit.
Please note that there are risks in using a guarantor to assist in purchasing a home. We recommend consulting our expert team for further advice if you are considering this.
Not All Lenders Are Created Equal
The way that each lender calculates borrowing capacity is unique. For example, Lender A may use a higher percentage of bonus income you receive compared to Lender B. By using a skilled broker, we can help find the right lender for your situation to maximise your borrowing capacity.
To Conclude
Managing personal finances effectively with limited savings and good borrowing power requires careful planning, discipline, and informed decision-making. You can make the most of your financial situation by assessing your borrowing capacity, prioritising financial goals, and exploring borrowing options and government support while being open to compromise.
Building savings takes time, but with determination and the right strategies, you can leverage your borrowing power and work towards achieving your financial goals. Take the first step today by booking a call to assess your borrowing capacity and discuss your financial goals.
