I don’t over spend and keep a tight budget – does that mean I can borrow more?
Some people are avid savers. They run a tight budget and minimise their spending to maximise their savings. That’s fantastic and it will put you in a great position to save a healthy deposit to invest in a property. Proven savings ability is an important aspect of securing a loan but your expenses also form part of the equation when a lender accesses your ability to service a loan.
Spending money each month to live is unavoidable and lenders will factor this into the amount that you can borrow. They do this by using a set of data called the Household Expenditure Measure, or HEM for short. This is based on the average spending of all households across the country that take into account factors such as single/relationship, metro versus country, income and dependants.
The highest category for HEM is a couple, living in the city, earning over $360,000 per year with 4
dependants. Their monthly expenses are calculated at over $7,590. Whereas a single person, living in the country earning less than $24,000 has monthly expenses of about $1,270.
When determining your borrowing capacity, the lenders will ask you to provide your monthly expenses. It includes categories such as recreation and entertainment, clothing and personal care, transport, utilities, groceries, education, communication, child care, pet care, insurances, medical and health care, primary residence running costs and then any other expenses you may have. It is important to be fair and reasonable in your assessment as lenders will need to see bank statements to verify your outgoings and, if you declare expenses under your HEM category without an acceptable explanation, then the lender will default to the HEM amount even if you say you don’t spend that much money.
So, whilst spending less doesn’t always mean that you can borrow more, it certainly means you’ll be in the best possible position to show a lender that you are a person of good character to lend to.
The best place to start is to work out what your borrowing capacity is.
You can fill out my 5-minute assessment form here: https://bit.ly/43VqyrH
Call on: 0418 552 938
Email at: peter.jefferson@mortgagechoice.com.au, or
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If you’re a first home buyer, I’ve also created a useful guide to help you understand other key aspects of buying your first home.