Looking to boost your borrowing power? Adding flatmate income could help

Are you looking to buy a home? Whether you’re a first-time buyer stepping onto the property ladder or moving into a larger home, using flatmate income could be a smart way to increase your borrowing power.

For example, purchasing a home with two extra bedrooms could add up to $200,000 to your borrowing potential. This is a popular strategy that helps many Kiwi afford their first home.

Once you own a property, flatmates are considered boarders for mortgage purposes. This boarder income can be factored into your mortgage application to increase your overall purchasing power. It’s a helpful option if you’re buying on your own, but couples can also benefit by strengthening their joint application.

How banks treat boarder income

Most lenders are open to including boarder income in a mortgage application, even if you haven’t found a boarder yet. Generally, a signed declaration confirming your intent to find a boarder is sufficient. This flexibility allows you to find a boarder after you’ve settled on a home, without needing someone in place beforehand.

How much boarder income will banks consider?

The amount of boarder income that banks accept can vary, but it typically ranges from $225 to $300 per room, per week. Each boarder could add up to $100,000 to your borrowing power, depending on the lender’s criteria. It’s important to note that this figure is based on the bank’s assessment, not the actual rent you intend to charge.

Lenders will also consider whether your boarder plan is realistic. For example, if a couple is purchasing a three-bedroom home, it’s reasonable to assume they could take on two boarders. The key requirement is that there is at least one spare bedroom available per boarder.

Other ways to boost your borrowing power

While boarder income can make a big difference, there are other strategies that can help you boost your borrowing power:

• Clear personal debts and credit facilities: Banks treat any available credit as a potential expense, including over drafts, credit cards, and Afterpay. They will typically calculate 3% of your total credit limits as a monthly cost, even if you’re not using it. For example, a $10,000 credit card limit is assessed as a $300/month expense. Reducing or cancelling unused limits can free up borrowing capacity.

• Purchase with a second applicant: Combining two incomes can make a significant difference. As a general guide, you can often borrow up to five times your income, so adding an extra $60,000 income could increase borrowing potential by around $300,000.

• Increase your deposit: Having a deposit greater than 20% means banks have more flexible debt servicing criteria.

Why it’s important to get expert mortgage advice

Every bank has its own lending policies when it comes to including boarder income, and these can differ significantly. Working with a mortgage adviser can help you navigate these nuances and present your application in the best possible light. An experienced adviser will know what each lender requires.

If you’re considering using boarder income to help buy your next home, the Enva Mortgage team is here to help. We can guide you through the process and ensure your application is structured for success.

Get in touch with us today at mortgages@enva.co.nz or give us a call on 0508 287 672.