It used to be enough to give a rough estimate of the cost of living, the Royal Commission and the Australian Prudential Regulation Authority’s (APRA) has put the spotlight on your living expenses as part of a call to confirm sound lending practices. Now lenders are progressively asking for itemised and verified household expenses.
It may be a little frightening to list all your ongoing commitments, but it’s a good exercise and worth your while. Adding up what proportion you pay weekly on groceries, transport and utilities may be a valuable insight into your ability to satisfy your mortgage repayments.
With the National Consumer Credit Protection Act 2009, Australian lenders need to make allowances for living expenses after they assess your borrowing power for a loan application. This is still true, however, what has been modified is the level of scrutiny required. Living expenses need to now be accurately gathered to confirm that your personal and monetary circumstances remain practical.
How to Itemise your expenses
Are you aware of how much you spend on running and maintaining your car or updating your wardrobe? You may now need to know these type of details when applying for a mortgage. Instead of bundling your living costs as a single expense, applicants are requested to break down costs into specific categories. For example:
- childcare
- clothing
- personal care
- groceries
- medical supplies
- insurance
- transportation
- entertainment
- communication (phone, internet, streaming)
- education
Provide evidence
You can verify your expenses and declared income using three months or more of payslips, and recent bank and credit card statements.
Beyond basic expenses, you may be asked to provide proof for other financial commitments. For instance, if you pay rent you may need letters from your property manager or signed rental agreements. If you have child support or other debt obligations, make sure you’ have the necessary court orders or child support agency letters, bank statements and transaction listings.
Take the trouble out of these new requirements for living expenses by seeking the recommendations of our experienced mortgage brokers. Your Peasy broker will assist you with all the details like handling the papers and knowing which lenders provide criteria appropriate to your situation.