Thinking of applying for a Home Loan? Spring Clean your Expenses!

Prior to the Hayne Royal Commission, if you applied for a home loan you would generally state a single monthly living expenditure figure on your loan application.  The estimate would capture items such as groceries, entertainment, insurance, pet care, etc. 

Since the Hayne Royal Commission passed down their recommendations in Feb 2019, lenders have stepped up their 'responsible lending' efforts.  As a result they have refined their internal processes to validate all applicants' stated living expenses and depending upon the lender, you need to provide accurate monthly spending across up to 20 different expense categories.  The tricky piece is most of the categories are of a discretionary nature.

It is not uncommon for lenders to request 3 months of your savings/transaction account statements to prove your salary credits, along with any other associated accounts to prove your daily spending habits such as credit cards and other linked savings accounts.

Lenders have retrained their assessors to forensically validate applicants spending habits by reviewing their bank statements line by line to ensure their application figures are accurate category by category.  In addition to this they are looking to uncover any undisclosed liabilities and any potential red flags such as gambling issues, etc.  

Many retail providers now offer 'Buy Now Pay Later' services to consumers such as Afterpay, Zip Pay, Humm, etc.  At the time they seemed like a great solution to being able to buy the item you want and pay it off in instalments.

Unfortunately many clients are not aware that by having these active accounts, it negatively impacts on their borrowing power. 

So if you are thinking about restructuring your finances or borrowing further funds it is highly recommended to consider your spending habits three months out from submitting a loan application & 'Spring Clean' any unused credit accounts by closing them.

Every lender has its own internal processes and documentary requirements to support their risk tolerance levels.  It has never been more important to seek the expert advice by speaking to our mortgage brokers to ensure you maximise the chances of having your loan approved.

Cameron Price
Owner at Mortgage Choice Melbourne