By Louisa Sanghera, Director, Zippy Financial
High net worth borrowers generally earn more than they spend, which is obviously a great thing – but it can also be a double-edged sword.
Why? Because it can impact your ability to get finance.
- Find yourself complaining that you never have enough time?
- Does your ‘To Do’ list grows every day, but you barely seem to tick things off?
- Are you running between work, gym, family and other commitments like a hamster in a wheel?
If any of this sounds familiar, you could benefit from having a broker help you get your finances and loans organised.
Why do high income earners need help to get a home loan?
Borrowers with high incomes can find themselves spending more than they need to because they can afford it.
They don’t need to check how much they’re paying for their internet service or shop for the cheapest groceries because their budget can afford it.
An extra $20 here and $50 there isn’t worth worrying about for you, the way it might be for someone living week-to-week on lower wages.
Where this can cause problems is when you want to apply for finance.
In fact, high-income earners can have a lot more trouble than they thought they would when they try to secure finance.
This is because with a high income comes high disposable expenditure – something banks don’t like at all.
So, what can you do about it?
The first step is to work out what you’re spending right now, and if that amount could be considered “too much” in the eyes of the bank.
But what’s “too much”?
Here’s the thing: lenders generally assess your spending using Household Expenditure Measure (HEM). This formula gives the lender an amount as a guide that the average person spends…
- In your location (the HEM varies depending on the city you live in)
- With your family size (it changes based on how many kids you have)
- Your income (lenders assume a higher income means higher spending)
By figuring out how much it should cost you to live, the lender can look at your salary and determine how much you’ll have leftover to service the loan.
Lenders assess your spending against the HEM, and if your spending is way higher than the HEM guidelines, it can show up red flags.
Let’s say, for instance, you’re a couple with one child living in Sydney, and you earn $250,000 combined.
The HEM threshold might suggest spending of around $5,000 per month. But your actual spend is $9,000 per month.
The lender might view your spending habits as reckless, as they exceed the HEM by a large margin… and that’s not someone they want to loan hundreds of thousands of dollars to.
This is where an experienced mortgage broker can help.
- We can help you adjust your spending habits, to become a little more lender-friendly.
Don’t worry, you won’t be living on baked beans and toast. But you may need to reign in some of those recurring, non-essential expenses for a few months, so we can help you produce bank statements that reassure your lender you’re a good ‘credit risk’.
- We help you restructure your debt.
You might also have large credit card limits thanks to your income, which we may need to reduce. Many people don’t realise, but even if you only owe $100 on a $20,000 card, the lender will assess this card as though it’s fully maxed out – bringing down your borrowing capacity. You can always bump the limit back up again down the track if you need access to more credit.
- We help you find the best lender for your specific situation.
Every lender has a different loan policy, criteria and appetite for risk. As experienced mortgage brokers, we can assess your situation and help match you with a lender who will be most likely to approve your loan, as their policies suit your situation.
For every problem, there is a solution, and with our depth of knowledge and experience, we can help you move through these obstacles and become “finance ready”.
