How your living expenses can impact your home loan application
In determining an applicant’s eligibility to secure a home loan, a lender will assess not only their income, liabilities and credit history but also their living expenses. Gone are the days where an applicant could declare a nominal amount for their cost of living, and it be taken at face value. Now banks closely scrutinise statements and their transactions to determine, as much as possible, a potential customer’s real cost of living.
There are eleven categories assessed by lenders and it is up to the customer to declare a reasonable figure for each. These include the following:
- Food and Groceries – This will include everything you may purchase at the supermarket along with incidentals like takeaway coffee or meals. Many applicants underestimate what their spend is so it is recommended to have a browse of your bank statement to have a reconciliation of your outgoings, because your lender most certainly will.
- Property Expenses – This encompasses not only your utilities and rates but also ongoing maintenance. It is reasonable to expect that a nominal amount should be included for repairs and upgrades. Most lenders will also have a separate field for both owner occupied and investment property expenses.
- Communication – This includes everything related to your phone and internet costs including pay TV. It is imperative to include all streaming subscriptions across all devices and accounts.
- Education – This category captures not only education expenses for children but also for the applicants if they are undertaking any type of higher education or training. Even if your children attend a government school there are still expenses to consider such as uniforms, excursions, and school supplies.
- Clothing and Personal Care – This can include clothing, along with hair and beauty treatments.
- Transport – This relates to costs associated with vehicle ownership including registration, petrol, maintenance and repairs as well as public transport costs. If you have “pleasure” vehicles such as a boat or caravan, the running costs for those will also need to be included.
- Medical and Health – This includes doctor or dentist visit costs along with any other specialty practitioners such as chiro or physio and the like. Medication and vitamins as well as items such as prescription glasses should also be factored in.
- Insurance – All insurance policies held must be accounted for including car, home, landlord, health, pet and personal insurances.
- Recreation and entertainment – All costs associated with leisure activities along with dining out, concerts and sporting event tickets should be considered along with holidays and travel expenditure. Alcohol, cigarettes, and gambling should also be accounted for in this category.
- Children and pets – Expenses that should be captured here may include childcare, sporting club fees, music lessons or any other tuition. Pet expenses may include grooming, vet expenses and medications for animals.
- Other expenses – Applicants may wish to include other discretionary expenditure such as gym memberships, club memberships or even costs associated with hobbies – namely anything which you feel does not fit into any of the other categories.
As lenders will carefully reconcile the amounts declared with outgoings as they appear on your bank statements its imperative to be realistic. Before you apply for a new home loan it’s a good idea to sit down with your mortgage broker to see what your borrowing capacity is. If you are struggling to borrow what you want or conversely need to save more for a deposit, having a good look at your living expenses and making some adjustments may assist in moving you closer to your goals.
Talk to your Blackburne Mortgage Broker today if you’d like to know more about how a lender will assess your living expenses and find out some real life tips on how to maximise your borrowing capacity.