Borrowing Power, how much can you borrow?

Some uneducated first time home buyers think having a large deposit down payment available will increase the amount of money they can borrow – their “borrowing power.”  Unfortunately, even a deposit as large as 50% of the purchase price of the home tells the lending institution nothing about what they need to know – will you be able to continue to make repayments and pay off the remaining 50%.

Here are some of the things a lending institution considers when determining your borrowing power:

Pre-tax gross annual income for the year.
Dividend income on investments for the past 2 years.
Government assistance payments of any kind.
Property rental income.
Dependent status (Applicants plus dependent children).
Credit Card and Store Credit limits.
Interest free limits
Outstanding balances on unsecured debt (credit cards) and secured debt (car loans, loans on existing rental properties).
Maintenance or rent payments for property you’ll continue to use.

If you are just getting ready to enter the market you can use the Internet to find mortgage websites that feature borrowing power calculators.  With these you can enter some basic information and get a rough idea of how much you can borrow towards the purchase of your new home and how much your monthly repayments would be.

Of course, these are only rough estimates but they do give you a general idea.  The best advice you can get regarding borrowing power is to find out how much you have before you begin viewing potential homes.  There is no point wasting time looking at $500,000 homes if you can only borrow $350,000.

To do this, search for a trustworthy mortgage broker or lending institution and get a pre-approval.  A pre-approval is simply a letter from a lender indicating how much they would be willing to lend to you – your borrowing power.