Smart Money Solutions

You are earning the same income and still saving. So why might your borrowing estimate be lower than before?

A home loan assessment looks at more than your salary. It also considers:

• The interest rate used to test repayments
• Credit card limits, even where little or nothing is owing
• Existing loans and other commitments
• Your household expenses
• How much of any overtime, bonuses or casual income the lender can use

That means a change in one part of the calculation can affect the result, even when your pay has stayed steady.

Before assuming your home plans are out of reach, it helps to understand what changed between the two estimates. A different figure may reflect a different rate, an omitted debt or a different treatment of income.

Knowing the reason gives you something practical to work with, rather than simply feeling discouraged by the number.

Is a lower interest rate enough reason to refinance?

It is a good starting point, but there are other things to check:

• Switching and discharge costs
• Possible fixed-rate break costs
• Lenders Mortgage Insurance
• Annual fees and loan features
• The remaining loan term
• How long it will take to recover the costs

Be careful about automatically resetting the loan to 30 years.

A longer term may reduce the monthly repayment, but it could also mean paying interest for longer.

The best refinance option is the one that provides an overall benefit and suits what you are trying to achieve.

The investor had good income, usable equity and a strong repayment history.

The loan passed an initial serviceability calculation, but the investor’s total debt was more than six times their gross income.

The lender still needed to consider its high DTI limit and internal policy.

This could affect:

• The maximum loan amount
• The proposed loan structure
• The level of assessment required
• Whether that lender was suitable

Passing serviceability does not necessarily mean an application will fit every lender’s policy.

Property investors may hear that banks will not lend more than six times their income.

That is not quite how the APRA limit works.

Banks can use up to 20% of their new investment lending for borrowers with a debt-to-income ratio of six times or more.

It is a limit on the bank’s overall lending portfolio, not an automatic decline for every borrower.

This means two lenders may respond differently to the same investor, depending on their policies and lending position.

Serviceability, equity, credit history and the property being purchased will still need to be assessed.

Before making another offer, check how your existing debts and income will be treated.

Financial independence does not mean the household is financially invisible.

You may choose to purchase property and borrow in your own name. The lender may still need to consider joint debts, shared expenses and dependants.

Borrowing independently can be a valid choice. It just needs to be assessed within the full financial picture.

She had a strong income and wanted to apply for the home loan in her own name.

However, she also had joint financial commitments with her partner, including a credit card and an existing loan.

The lender still needed to decide how much of those commitments to include in her assessment.

Some lenders may include the full joint debt. Others may take a different approach when the partner’s contribution can be demonstrated.

This is one reason the same individual applicant can receive different borrowing-capacity results from different lenders.

Can you apply for a home loan in your own name if you are married or partnered?

Often, yes.

The lender will assess your income, debts, expenses and credit history. It may also consider:

• Shared household expenses
• Financial dependants
• Loans or credit cards held jointly
• Who will be named on the property title

Your partner may not be applying for the loan, but some information about the wider household may still be relevant.

Lender policies differ, so it is worth comparing a sole application with a joint application before deciding.

The buyer had enough money in their account for the deposit.

However, some of the money had recently been transferred by family.

The lender still needed to confirm:

• Whether it was a gift or a loan
• Who provided it
• Whether it had to be repaid
• Whether genuine savings were required

Having the money available is important, but the lender may also need evidence explaining where it came from.