All banks and other lenders have their own rules, regulations and processes for approving loans. Just because one lender won’t approve a loan for the amount you want doesn’t mean another won’t. For example, some lenders will allow 100 per cent of your overtime income, while others will only allow 50 per cent; some won’t recognise overtime as income at all.
Work allowances and company cars are another grey area. Some lenders will take into account having a company car as a method of saving money so they will look on it favourably. Some lenders won’t look at it at all.
Some banks will assess your credit card monthly payments based on 3 per cent of the credit card limit while others will assess you on 5 per cent of the limit. Knowing which bank does what can be the difference between a lender saying yes or no to your loan.
Another factor that can vary considerably from one lender to another is child maintenance income and family payments. Some banks will take this income into account at 100 per cent, others at 70–80 per cent; a few will value it at 50 per cent and other lenders won’t subscribe any value to it at all.
A good mortgage broker will be able to fill you in on the intricacies of all these lending quirks as it relates to your own situation.
Don’t be sold on interest rates alone
Interest rates are only one part of the lending equation.
Choose a lender than takes into account the best percentage of your rental income
Another quirk of lending is that some banks only recognise a percentage of rental income rather than the whole amount. Make sure your lender recognises a high percentage (70–100 per cent) of your rental income.
Choose a lender that will allow generous add-backs
Your taxable income alone isn’t the same as the actual income that you have at your disposal to cover your existing commitments plus the proposed repayments for your new mortgage. Lenders will often ‘add back’ any expenses you have incurred that have reduced your taxable income.
Some examples of add backs are:
- Investment property expenses
- Additional superannuation
- Company car
- Trust distributions
Ensure your lender will at least allow depreciation and interest add-backs on your investment debt.