That smashed avo could cost you your home loan – here’s why

After some hefty investigation by the Royal Commission, Australia’s Big Four banks (that’s ANZ, CommBank, Westpac and NAB) are all in a panic. Unfortunately that could affect you as a future home buyer.

Here’s why your love of smashed avo, takeaway coffees and Netflix could threaten your ability to get a home loan – and also, what you can do about it.

How living expenses impact your home loan application

In light of the Royal Commission, lenders have tightened up many of their policies. One of particular note is their increased scrutiny of monthly living expenses. Once it was OK for lenders to use industry benchmarks to estimate your living expenses. That’s no longer going to cut the mustard.

How things have changed

Forget your estimates. There are now numerous categories of living expenses that must be included in detail on your home loan application form. On top of these categories (examples of which we’ve outlined below), lenders are also asking for bank statements to verify these living costs. They may even question you on niggly little outgoings. Using an example from the Herald Sun, some customers are being chased on whether they are on the $10 or $18 Netflix plan!

Living expense categories now include:

1. Housing and property expenses.
2. Food, including both groceries and takeaways.
3. Transportation, both personal and public.
4. Health costs, including your gym membership.
5. Insurance.
6. Subscriptions like Internet, Netflix, mobile phones etc.
7. Children and pets.
8. Recreation, including travel.
9. Clothing and personal care.
10. Education, including books and equipment.

Can you live without your local cafe’s smashed avo?

How to help your case

Enough doom and gloom, let’s talk about what you can do to help your case and smooth out your mortgage application process.

1. Wrangle your living expenses down

Lenders are combing through up to four months’ worth of bank statements and other living cost information. Therefore it pays to plan ahead when applying for a home loan.

Effective ways to manage your spending include:

1. Write down all your outgoing expenses to quickly see what you spend the most on each month
2. Set yourself a budget limit for non-necessary purchases, such as restaurants, entertainment, clothing and yes, you might need to start rationing your smashed avo brekkies.
3. Trim the cost of necessary expenses where possible, for example choosing a cheaper mobile plan, reviewing your health insurance costs, taking your lunch to work, using public transport … just to name a few.

2. Get on top of your debts

Debts aren’t the end of the world, but they might make your mortgage application harder. Prioritise paying off existing debts before applying for a home loan, especially debts with a high interest rate, such as credit cards and personal loans. If you won’t be able to eliminate these debts, showing you can make regular, on time repayments is still a great step.

3. Talk to an expert

Don’t go it alone. One of the big mistakes many Aussies make is they try to handle the mortgage application process themselves. This can sometimes lead to their application being declined, which doesn’t look great on their credit history.

Find yourself a trustworthy broker and speak to them early on in the process. The sooner you do, the more they can help you prepare for your application … and who knows, you might be happy to find that you can have your smashed avo and eat it too!

If you want to learn more about how your living expenses could impact your home loan application, please contact our associate company Fitzpatrick Financial Services by calling 03 8544 1600 or emailing finance@fitzpatrick.com.au.