So, how much can you borrow? If you remember in the last slide, I said about budgeting being the key to saving. Now, do you think budgeting affects your affordability, how much you can borrow? It does. Just keep that in mind. That one solution solves a lot of things. So, a couple of points I want to make on this. So, what you can borrow?

Firstly, the effect of debt, borrowing capacity. Debt as you know, is a liability. You've borrowed money and you need to pay it back with interest. So, you're robbing your future spending, pretty much.

I'll give you an example. Let's just say you had a $15,000 car loan and you were paying $250 a fortnight, let's say. Quite common. A lot of people have car loans, different sizes, but I'll just use that example. It could be a personal loan. It could be something of that nature. So, $15,000 car loan, $250 a fortnight is your payment. That's equivalent to a $75,000 home loan. You can have the car loan at $15,000, paying $250 a fortnight, or you can have a $75,000 home loan. You can't have both. You need to choose.

The second example I'm going to give you is a 10 grand credit card limit. I don't know if you've heard about this, but let's just say you had a $10,000 limit on a credit card. But you don't owe anything, let's say hypothetically. Well, you might owe a $1,000 or $2,000 on it, but the limit is $10,000. That's equivalent to a $40,000 or $50,000 home loan. So, you can have a credit card with a $10,000 limit or a $40,000 or $50,000 home loan. You can't have both.

So, to pay down debts, you obviously need a budget. Get rid of them, avoid debt. I'm also going to tell you another little trick that lenders when they're doing low deposit home loans for people that have less than a 20% deposit. Ideally, the amount of debt that you have is zero. Ideally, it doesn't have to be, but that's ideal.

I've got one lender in particular, if they get a low deposit home loan under 20% deposit, if the person has $1 more than $10,000 of debt, it will do an instant decline. So, I'll repeat that. I've got a lender's policy that if you have more than $1 of over $10,000 worth of debt, they will instantly decline it.

If you're asking a lender to put up majority of the money to purchase a property, be very wary of debt, get rid of it, pay it off, don't take it out, and limit it. Now, I'm not saying it has to be zero. That's the ideal right, but as low as possible. So, that's the first point I wanted to make.

The second point is around affordability and borrowing capacity as I mentioned. It's a derivative of your income, debt, and family situation. So, generally in New Zealand, people can borrow between 4 and 6 ½ times their combined gross income of the applicants. So let me repeat that. Generally, in New Zealand everybody can borrow between 4 times and 6.5 times their gross income of the applicants, okay, or applicant.

So, 4 times would be a single income household with children and debts. 6.5 times would be two high double incomes with no children and no debts. Now there are many other variables which go into that calculation, but I just really wanted to give you some instant feedback. You'd obviously add your deposit on top of that. Now it is a big range. That's a huge range when you think about it.

To work out what this might look like, I just encourage you to book a 15-minute chat. So, that's two big tips on how much you can borrow and a little bit of information there. All right, let me know if you've got any questions. Now we're going to move on to the really exciting bits.

Matthew Dawe

Mortgage Broker | Financial Adviser

Phone: 027 321 4287

Email: mortgages@matthewdawe.com

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