Lenders verify earnings through payslips and employer contact, then deduct salary-sacrificed amounts like car repayments and child support. Credit card limits hit hardest: a $10,000 limit can slash your borrowing capacity by $40,000. Check your credit file at mycreditfile.com to see what lenders see.
Questions this video answers
Every $5,000 of credit-card limit (not balance) can reduce borrowing capacity by about $20,000.
An applicant eligible to borrow $200,000 could see borrowing capacity reduced to $160,000.
December 2012.
Chapters
Evaluating what you earn versus what you owe. So what do you really earn? Firstly, every lender will require you to prove what you earn. Generally speaking, this means you'll be required to provide a number of payslips to prove your earnings. Each lender has different requirements on this. Some require three consecutive payslips with the oldest being no more than one month old. While other lenders only require one payslip with three months worth of year to date payments listed on it. All lenders require these to be computer generated with the employer's entity and details their ABNACN number listed and an address. The benefit of the latter is that if you earn commission or bonuses, if they're just looking at one payslip and three months year to date, then based on the calculation, your annual income could come across as higher, which is validated by your payslip. Lenders will evaluate these payslips in detail, noting any deductions, that is Medical salary sacrificing, car repayments, additional salary sacrificing for superannuation, for instance even child support payments. These extra payments will normally be deducted from your base salary and they'll use that as a starting point. You'll also be asked to provide contact details for your employer so that the lender can confirm your employment type, are you full time, part time, casual contractor, your employment duration and your actual earnings. When it comes to determining your borrowing capacity, lenders will only take into account your base salary, not your total salary package, that is your superannuation that they contribute. So we've looked at how lenders assess what you earn. Now let's have a look at what you owe. It's not going to surprise you. Each lender has their own formula for calculating how much it costs you to live. However, they also want to see what your budget is, so they will override their assessment of the costs with your own figures. So think about what your real costs of living are now and in the future. When you have this property, you might want to think twice about your discretionary spending if it means the difference between a property and not having one. So go back and have a look at your budget. Have a look at what you're spending now and what you comfortably could cut out if it means that you can actually get a loan. So let's have a look at credit cards. Credit cards are also a major factor that lenders consider in their assessment of your financial position. This might surprise you, but for every $5,000 worth of credit limit not the balance but the limit on your card means on average $20,000 less that they're going to lend you, that's $20,000 less that you can borrow. For example, if your circumstances mean you would normally be eligible to borrow $200,000 and you have a credit card with a zero balance but a limit of $10,000, this could reduce your borrowing capacity to $160,000. Those of you who keep a credit card for the just in case situation, you should review how high this limit really needs to be. Your lender will know when you apply for a credit card and the limit that you applied for. This is listed on your credit file, so you can't lie. Let's have a look at your credit file. What is your credit file? It's the record that's kept on all the enquiries you've made for finance, be it your mobile phone account or previous mortgages. If you have not done this already, before starting the next module, go to mycreditfile.com and order your credit file. You can pay to have it delivered straight away to your inbox or get it for free. They'll mail it to you after 10 days. Just go and order it now. You need to know what's on your credit file because that's what lenders are going to be looking at now. Note here's an update in December 2012 there's been some privacy changes and what's listed on your credit file has changed a little bit as well. Lenders now have access to so much more information, like not just your initial loan finance enquiry, but an up to date actual balance of what that's at now.
