Tighter scrutiny on living expenses a game changer for loan applicants

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Off the top of your head, how much per month do you pay for electricity? How much do your basic living expenses cost? What would you spend on entertainment or travel? Not sure?

living expenses

Time to add up your living expenses

There’s a requirement in every home loan application to provide a budget estimate of your living expenses. For many home loan applicants, this is the first time they’ve considered the real cost of their living. They may be able to make rough calculations and give an estimate, but often this figure is indicative and not concrete or backed up with any proof.

Now, for the first time, it’s not enough to provide a calculated estimate of living expenses. Financial Institutions want firm proof to substantiate budget figures. There’s now a much higher level of accountability required to prove that you can genuinely and comfortably live on your income.

Whether you’re purchasing your first home, upgrading or trying to get a better deal on your current loan, your living expenses will now need to be verified using bank statements. Your statements from three months before you lodge your loan application will be used by your lender to demonstrate that you can afford the loan. Also, comprehensive credit reporting now means that all credit card limits and open accounts are visible and will be taken into account.

So, it’s time to get serious about identifying your living expenses. For three months before lodging a loan application you need to establish a clear financial footprint that demonstrates you’re living within your means and spending your income where it’s necessary, not necessarily where it’s the most fun.

How to calculate your living expenses?

Make a start by taking a snapshot of your existing expenses. Grab receipts and statements of regular payments such as: car or home insurances, health insurance, registration, rates, energy, memberships, subscriptions, rent or existing mortgage and even your Spotify subscription. Don’t forget annual payments. Once you’ve compiled those, print out a bank statement showing the last three months of activity across your accounts. This is a great way of making yourself aware of where your money goes and gives you a basis for the next step of planning a budget.

There are many budget planning calculators available, such as Money Smart and the Australian Taxation Office Personal Living Expenses calculator

Once you have a plan in place, make us of the many free money management apps such as Moneysmart.gov.au’s TrackMyGoals which allows you to set, plan, track and manage your goals. TrackMySpend tracks your spending and highlights where you’re spending your money so that you can keep on track.

Sticking to your budget for three months may not be easy. It may be an eye-opener, and it requires a high level of commitment, but it’s a step you have to take to ensure your loan application is given consideration.

If working out your living expenses seems overwhelming that’s where I can assist. As a mortgage broker in Newcastle I have helped hundreds of people prepare to apply for a home loan and I would be happy to help you too.

If you are looking to buy a home then give me Margaret Godfrey, Mortgage Broker Newcastle a call on 0451 471 061 for a no obligation free chat or send me an email to mgodfrey@smartline.com.au

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