With housing prices at their lowest, now is the time for first home owners to enter the home ownership world. However, with the royal commission recently coming down hard on banks, borrowers need to also consider more then just employment and savings.
When going for a home loan, the bank used to focus the majority of their attention to your income, existing debt levels and account conduct (ie. paying your bills on time). When servicing you for a loan, they would use the figures prior plus an average of what they expected it to cost for you to survive per month. Often, this turned out to be a very basic figure that, at times, could be grossly underestimated, leaving the borrower then struggling to cover mortgage and general expenses.
Banks are now focusing on responsible lending, and in turn real living expenses - aka. what they see coming out of your account. So, let's start with what the lenders calculate as part of your living expenses:
- Utilities: Covers things such as phone, internet, power and water bills. Also, rates if you already own property.
- Education: If you have children or are studying yourself, this one covers school fees, book fess, excursions, uniforms and any other costs associated with learning.
- Food: An obvious one, this is your regular grocery shopping and may also include a monthly estimate of your "take-away" expenses.
- Health Care: This covers all things relating to health such as monthly insurance payments, regular doctors appointments and monthly prescription and treatment estimates.
- Transportation: All things motor, rotor or boater related. So vehicle insurance, rego, petrol and even an estimate on costs of service. Don’t have a car? You'll need to declare bus fares, taxi, train and Uber fares instead.
- Personal / Entertainment Expenses: This is the big one as it includes estimates of Pay-TV subscriptions, clothing, hair, make-up, grooming, magazines, books, alcohol, smokes, holidays, gift, donations, pub trips, etc. Pretty much everything that doesn’t fall in the above.
Now, when we as brokers ask our clients for the above, it can become the most long and difficult part of the application. Very few people really get down to the nitty-gritty of what they are spending monthly. However, it is vital that you are as accurate as possible on the above. Banks and brokers as part of our responsible lending will go through your bank accounts to check for any withdrawals that seem to not be counted in the above. If its not listed and it’s a expense that is regularly occurring, it will have to be included in your monthly expenses and be considered when servicing you for your home loan.
As pedantic as it may sound, if you looking at getting home, sit down and have a good look at your accounts and calculate your daily expenses to start keeping track now. Not only will it make your application appointment with your bank or broker much easier when you have this info at hand, but you could find that you have areas that you are perhaps over-spending in and it could mean some additional saving options you hadn’t considered.