Why does the amount I can borrow vary between lenders?
When it comes to lending and home loans, not all lenders are created equally. Each has its different policies and conditions that mean that they view and assess your application in different ways.
Depending on your circumstances, different lenders have different policies in place around things like self-employed income, rental income, and commission based income, with each lender treating these differently in your application and therefore affecting how much you can borrow from each lender.
Different lenders also have different stress tests for borrowers. This is where they assess ability to repay the lending at a higher rate than the current interest rates to ensure that if the rates rise significantly, that you can still repay your loan. Some of these stress tests can differ and are often at least 1 % higher than the current interest rate which is a big difference when we are talking about repaying hundreds of thousands of dollars!
Some lenders also take into account a UMI calculation, which stands for Uncommitted Monthly Income. This looks at how much money is left over each month after expenses, and whether or not you can afford the home you are after. Some banks have higher UMI levels than other banks, and some are more forgiving than others, so this is something else to keep in mind.
All of these different policies and criteria are built into each lender's borrowing calculator, so when your income and expenses are run through each calculator they can often offer a wildly different result. Some may say yes to self-employed income, rental income and boarder income, where some lenders may say no. Some may assess on a higher stress test or UMI where others might be a bit more lenient.
But all of this can add up to some rather big amounts, with differences in lending amounts sometimes varying up to 5 or 6 figures! A big difference when you are looking to buy a home!
So how do you know if you are choosing a lender that is offering the best borrowing power?
Unless you go around each one of them, then you really don’t!
That’s why we recommend using a mortgage advisor like Loan Market Agile. Our mortgage brokers will do the leg-work for you, checking what each lender has to offer and putting the best options forward for you to choose from. We can also run the calculations for you and show you visually the difference in lenders, amounts able to borrow, and different policies and criteria.
If you would like some help in ensuring you get the best lending deal for you, then get in touch with our Christchurch mortgage advisors today. We’ll handle all the tricky bits, and ensure that you fully understand your available options.