Heidi Armstrong explains everything about your credit file and how it affects how much your lender will lend to you when shopping for a home loan.
By understanding how your credit file is created and updated, you can make sure you keep it looking good. Heidi also explains how a lender calculates your borrowing power.
The live session is divided into 11 videos, packed with information you need before applying for a home loan in Australia.
Video transcript below:
HOW LENDERS TREAT EXISTING INVESTMENT DEBT WHEN DETERMINING YOUR BORROWING POWER
Part 8 of 11
Check your credit score and borrow more
Heidi Armstrong, Director of Operations, State Custodians
Treatment of other debts. Now this is a classic. If people in here may have their own home loan and they have an investment loan. So you have your, you are re-financing your home loan. You are coming over to State Custodians re-financing your home loan. But you have these other investment loans that you are not ready to refinance yet, but say you might have done the check.
Different lenders will treat your repayments differently. Say for example, most investors will have an interest only loan for their investments, unfortunately their debt, their investment fund. So then State Custodians will say, okay you are interest only, whatever your repayment is, we will factor that into the serviceability calculator.
But there are other lenders that will say, well even though you are paying interest only, we are going to assume you pay for PNI, we feel more comfortable with that, PNI and in actual fact, not only is it PNI, we are going to check that at the bench mark rate, which is 2% higher than what you are actually paying.
So you can imagine how that affects your servicing, when you are really paying interest only, but the calculator that the lender is using is saying, you are paying a lot higher as a repayment on that investment loan.
Family tax income, A and B. Typically most lenders will use this. However, some won’t. When your children at getting to the age that it’s no longer going to be ongoing. Self employed borrowers, they find treatment of financials, this is a big one.
So many lenders will say, well I do want to see your 2 years tax returns. We want to see your last 2 years tax returns. Some lenders, okay we will allow you if you have increased over the years, so they will say, we will allow a 20% increase on your previous year’s financials and that’s what we are like using in net profit. Other lenders will say, we will take the average of both and other lenders will say, we only want to see one year’s financials.
So if your first year was $50,000 and your second year was $100,000, one lender is going to allow you to say your income is $60,000. Another lender will say $75,000 and another lender will say your income is a $100,000. And on top of that there is differt statements about tax. So depreciation, one off repairs for roofs, some lenders will allow that to be added back off this loan.