Did you know that just having a credit card will reduce how much you can borrow for a home loan?
Let’s have a look:
Daniel is looking to purchase his first home and he wants to find out how much he can borrow. He’s working in a sales support role in the city and earns $85,000 pa. Daniel doesn’t have any debt. But he does have a credit card with a limit of $20,000, which he pays off in full by the due date each month, so I guess that doesn’t count, does it?
Although Daniel doesn’t currently have any outstanding balance on his credit card the full $20,000 limit will be taken into account when determining how much he can borrow.
With the credit card, Daniel could borrow about $330,000 for a home loan.
If Daniel was to cancel his credit card he would be able to increase his home loan by approximately $85,000 – he could now apply for a home loan of around $415,000.
This means that Daniel can now start looking at a 3 bedroom, 2 bathroom house with a 2 car garage, as appose to a two bedroom, one bathroom unit.
Daniel is now planning out how he can convert his garage into a mancave and possibly even start his own veggie garden.