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What is my borrowing capacity?

Discussion in 'Finance & Banking' started by Glebe, 12th Nov, 2006.

  1. Glebe

    Glebe Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    932
    Location:
    Sydney, NSW
    Hey crew,

    I should say at the outset that I'm not planning on buying a house until July next year, so I don't want to do the face to face with mortgage brokers as I'd only be wasting their time.

    At the moment I'm in a planning stage and am putting numbers together. But in order to make the spreadsheet meaningful I need to know how much money I can borrow.

    Is there a formula I can use or a spreadsheet I can punch numbers into? Otherwise I'm happy to throw say what my salary etc is and for you guys to estimate, I don't really care.

    It's for an investment property.

    Thanks,

    Glebe.
     
  2. qlds007

    qlds007 Member

    Joined:
    25th Oct, 2006
    Posts:
    11
    Location:
    Brisbane, Australia
    Hi Glebe

    One of the problems with such a question is that each and every lender has different ways in which they calculate serviceability and hence the amount you are able to borrow.

    To provide you with a simple equasion we shall take a typical scenario.

    1) Take your net monthly income from employment and add to this 75% of the Gross rent you are likely to receive.
    2) From the figure deduct a living allowance (let us assume that you are single with no dependants and work on say $950 - If this wrong i can give you the other figures for asay a couple and each dependant)
    3) Then subtract any of the following monthly expenses you may incur
    Rent if you currently your residence, other mortgage expenses (if your PPOR is mortgage) or personal loans, 3% of credit card limit.

    This will give you a monthly surplus. Take this figure and divide it by say 8.35 which will give you anumber in thousands and this is your approximate borrowing capacity.

    Please note that this could be way off dependant on some many other factors including interest rates at the time of application. Lenders work on sensitised rates of around 1.5% higher than the standard variable rate at the time to cover rate fluctations.

    An example would be as follows:

    Annual salary of say $60000 and anticpated rental of say $240 / week gross

    Net Assessable income = 3205 + 75% of $1040 = $4245

    Expenses - Living Allowance $950 / Current rent of say $800 / month / Car loan $240 / month and credit card with $3000 limit say $90

    Total of Net Expenses - $2080

    Amount used to service loan $2165 / 8.35 = $260,000 of borrowing.

    NB. As the borrowing increases so the rental amount may increase.

    Anyway if you want to float some actaul figures across the floor we can help further. Also many lenders let us add back the negative gearing benefits of an IP into your assessable income.
     
  3. Glebe

    Glebe Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    932
    Location:
    Sydney, NSW
    Excellent thanks Richard. I'm away from the computer for a couple of days, I'll play around with this soon.

    Cheers

    Glebe