How do banks calculate your expenses?

14th July 2019

Over the last few years, the assessment of expenses continues to become more difficult.

It’s not uncommon for lenders to comb through bank statements in order to carefully assess your available funds.

If you are applying for a loan sometime in the future – you need to ‘live’ the lifestyle you wish to portray in your application for a loan, not believe it will change once you apply.

 

Building a deposit while proving your serviceability

A good tip is to save the deposit by having an automated deduction from your bank account – similar to the projected loan amount.

In our previous article, we spoke about a person wishing to borrow up to $350,000.00, their monthly commitment would be around $1950 in our current climate.

If that person could deposit $2000 per month, for 24 months, that would be $48,000.00.

This person would then be able to make an application for finance, with a higher level of a surety they would pass serviceability.

 

How much deposit to save?

Those funds would then form the deposit. In most cases, and loan of over 80% LVR would mean mortgage insurance (pushing up monthly costs). We’ll discuss LVR in a future article.

 

What happens if your lender wants to review your expenses?

If the bank wishes to ‘review’ your expenses, it will attribute expense to the following:

Rent: Including board
Clothing/personal care: Footwear, cosmetics, apparel, hygiene products and haircare etc.
Education: Public, private and all associated costs including uniforms and textbooks.
Groceries: Meat, fruit, vegetables, cleaning products, milk, bread and toiletries.
Insurances: Health, home, home and contents, life, income, car, motorcycle and boat.
Investment property: Utilities, rates, repairs and related costs including tax levies, body corporate and strata fees (for units).
Transport: Public transport like buses, trains and taxis, petrol, registration, insurance, servicing and repairs..
Connections: Phone (landline), Internet, mobile, subscription-based television and other subscriptions.
Childcare: Childcare centre and preschool fees, nanny fees and after school home care etc.
Medical health expenses: Doctors (GPs), dental, optometry, holistic medicine and specialists that fall outside of bulk billing or what’s covered by private health insurance.
Recreation and entertainment: Take-out, pets, gifts, concerts, festivals, stage shows, opera, comedy etc.
Owner-occupied property: Utilities, rates and related costs including tax levies, body corporate and strata fees
Other unique items: Only list if it’s a regular ongoing expense

 

 

 

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