What to do if the bank won’t lend you as much as you want

So you’ve got your sights set on a home, spoken to a bank, and gotten an idea of how much you can borrow. The only problem is the amount is a bit lower than you’d like. Thankfully, there are a few things you can do to boost your borrowing power.

Put simply, your borrowing power is the amount that a bank is willing to lend you. If you’re on solid financial footing and can show you’re responsible with your money, banks will be much more comfortable lending you the amount you want.

To determine your borrowing power, your lender will take into account your income, living expenses, and any other financial commitments you might have. They will also scan your credit history for signs that you can be trusted to pay off your debts on time.

Lenders assess applicants in different ways, which means the amount you can borrow will vary depending on who you talk to. You can test this by trying out the borrowing calculators on different banks’ websites and seeing how the results vary.

If the difference between two lenders is significant, they might have different protocols around debt-to-income ratios (DTI). 

Your DTI is the sum of your debts and liabilities divided by your gross income. For example, if both you and your partner earn $60,000 per year and want to take out a home loan of $500,000, your lender will calculate your DTI using the following formula:

• $500,000 ÷ $120,000 = DTI of 4.2

Banks set their own caps on DTI ratios for borrowers, which means that the amount different banks might be willing to lend you can vary by an entire year’s salary.

Other reasons might be at play too. For example, newer lenders tend to exercise more caution when assessing potential borrowers. That’s because a customer defaulting on their loan will have much more of an impact on a smaller lender than a larger, more established one.

Your borrowing power, as determined by a particular lender, isn’t set in stone. Here are a few things prospective homebuyers can do to increase it: 

• Increase your income

• Cut back on expenses

• Pay off any debts

• Reduce your credit limits

• Check your credit report for mistakes

• Save a larger deposit

• Try a different lender

• Co-borrow with a parent

Increase your income

This is one of the most obvious ways to boost your borrowing power, but by no means the easiest. If possible, ask your employer for a raise, apply for a higher paying job, or consider taking on a second job.

Cut back on expenses

Your lender will want to see recent bank statements to get an idea of where your money is going each month. If you can rein in your spending (cancelling idle subscriptions and shopping around for better deals on utilities are a good place to start), it can raise your standing in banks’ eyes.

Pay off any debts

If your existing debts are excessive, lenders will be reluctant to saddle you with much more. Try to pay off your credit card in full during the interest-free period, and tackle any other debts you have so they don’t snowball any further. 

Reduce your credit limits

When calculating your borrowing power, lenders will assume your credit cards are usually drawn to their full limit, so try to lower your credit limits where you can. And if you have any unused cards it’s a good idea to cancel them altogether.

Check your credit report for mistakes

Obtain a copy of your credit report and check it for any errors that could be influencing your bank’s assessment of you. If there are inaccuracies or listings you can contest, you should contact your bank (and subsequently the credit reporting body) to set the record straight.

Note: In Australia, you can request a free copy of your report once every 12 months from a credit reporting body (such as Equifax, Experian and CheckYourCredit).

Save a larger deposit

There are plenty of benefits to having a larger deposit, including smaller monthly repayments and being less vulnerable to interest rate hikes. But it also signals to your lender that you can set aside enough money each month to service a mortgage.

Try a different lender

If the amount one bank is willing to lend you falls slightly short of your expectations, it might be worth chatting with another bank to see if they are willing to go higher. As mentioned above, lenders approach risk assessment in different ways and some may be less strict than others.

Co-borrow with a parent

Two sets of income will inspire much more confidence in your lender than just one. If a parent is willing to put their name on your mortgage application, it can go a long way towards helping you qualify for the loan you want. Just keep in mind that if your parents already own a home, you won't be eligible for any stamp duty concessions available to first home buyers. 

If your home loan application was rejected outright, it means that your lender does not believe you would be able to service a mortgage without falling into financial hardship.

Whether they identified red flags on your credit report or the loan you requested just wasn’t suitable given your current income and savings, you’ll need to make some big changes before you can re-apply.

Focus on improving your credit score by paying your bills on time, keeping credit card balances low, and only applying for credit when you really need it. 

A budget can also help by giving you a picture of how much money is coming and going each month. From there, you can identify and eliminate any unnecessary expenses and boost your savings over time. 

For more tips, browse our home loan serviceability guide. And if you’re unsure where to start when it comes to finding a loan, visit our home loans comparison page for a look at what’s available.