Tips that can maximise your home loan borrowing power

If you are planning to get yourself a home-loan, living expenses play a potentially crucial role in a lender’s servicing calculator.  Getting a clear picture of your living expenses will help lenders to determine how big a home loan you’re likely to be able to handle. 

Firstly, it is the banks’ responsibility to ensure the sustainability of their lending practices.

Secondly, banks have a part to play in verifying expenses and ensuring that the loan is in the best interest of the applicant.

Finally, I believe an emphasis is required on the responsibility an applicant has in the lending process to reflect their true living expenses as opposed to underestimating them.

But filling out a living expenses declaration can be a useful exercise for you as well. When you’re able to identify where your money goes each month, you may also be able to identify potential areas where you can cut costs.

Also you only harm yourself if you underestimate your living expenses and the bank offers you more than you can handle.  I know people who quoted the bare minimum as they ‘would definitely cut back’. They were offered more than they should have and used it all. Less than a year later they lost their house as they couldn’t sustain the “trim” budget and couldn’t make their mortgage payments
So if you are planning on applying for a home loan now, or in the future, you will be asked to declare your household living expenses  These are some of the things you need to declare:
  • Rental
  • Cellular expenses
  • Pay Television expenses (if applicable)
  • Groceries
  • Recreation & Entertainment
  • Clothing & Personal Care
  • Medical & Health Costs (excluding Health insurance premiums)
  • Transport
  • Education (if applicable)
  • Childcare (if applicable)
  • Insurance
  • Other expenses not associated in any of the above categories
Consumers who fail to correctly declare expenses when completing a bond application may limit their chances of getting the best home loan deal possible.

Mpho Ramatong, FNB Home Finance Division Channel Head: Housing Schemes, says when lenders assess an application, affordability, which considers your total income relative to living expenses, is an important measure used to determine whether you would be able to keep up with monthly home loan instalments or not.

This can further influence the home loan amount and interest rate you would be quoted for the term of the loan.

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“Therefore, taking the time to ensure that your living expenses are declared correctly can go a long way to ensure that you get the best possible bond deal from your bank,” says Ramatong as she unpacks some of the common mistakes that consumers make when completing the expenses portion of a home loan application:
  • Duplication – some applicants fail to get a good home loan deal due to the duplication of expenses. For example: If you have declared funds that you prepay into your credit card monthly, which you may be using to fill up for petrol and for groceries, you need not complete the groceries and petrol expenses portion in the form.
Ramatong says another form of duplication may arise if you are co-applying with a partner or individual that you stay with. In this instance, only one applicant may declare shared living expenses. For example, rent, water and electricity costs.

If the expenses are duplicated, lenders may not always be aware that the co-applicants stay together and share some expenses.
  • Dishonesty – being dishonest about your living expenses may lead to your application being declined. When applying for a home loan, banks require that you submit a payslip and six months’ worth of bank statements, amongst other documents. 
As a result, any disparity in the expenses portion of the form can easily be picked up by the bank.
  • Entertainment - be careful not to mistakenly declare a high entertainment expense by failing to separate needs from wants.For example, a need could be monthly costs for educational or recreational activities. While a want can be anything that you would possibly cut back on in tough times, such as movies or eating out at restaurants etc.
“If you aren’t sure about how to correctly declare expenses, it is advisable to consult your bank or an expert to avoid making costly mistakes,” concludes Ramatong.

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