12 Steps to Christmas – Your Budget

Welcome to our 12 Steps to Christmas, our guide to advance your financial health by Christmas 2024.

We’re almost 3 months down in 2024, with somewhat of a standstill in home loan interest rates and End of Financial Year quickly approaching. We are most likely coping with higher home loan repayments for a little while longer, whilst the RBA conservatively plans to eventually reduce the cash rate. Although interest rates may be stuck in the mud until the backend of the year, at least we appear to know what we’re sitting in for a bit. Positively speaking, it’s actually a decent opportunity to lock in an everyday budget and identify your healthiest position for the next 6 to 12 months.

Why invest time in a budget?

Nailing down your monthly budget based on your current expenses and potential future expenses is one of the most important tasks to complete before applying for a home loan. By establishing your spending situation, you will clearly identify how much you could comfortably afford with a home loan repayment. This may just give you the boost you need to buy in a higher price tier, providing you with confidence and clarity heading into an auction or best offers scenario.

We have a fairly comprehensive budget calculator available to get you started, try it here! If you are a spreadsheet aficionado like some of us at Bernie Lewis, get started on your own Excel masterpiece and share your work with us. Our team love to chat budgeting, yes it might be a slightly monotonous task, but one that positions our clients to achieve their dream purchases at the right home loan price.


Household Expenditure Measure

One of the main components of a lending application is how a lender views your living expenses. Some lenders will take a deep dive into your actual spending patterns, some lenders may simply use their Household Expenditure Measure (HEM) and take the higher of your declared expenses or their estimate.

HEM is a measurement tool used by lenders to approximate living expenses. This tool helps to determine your available income which may be used to calculate how you can repay a home loan. HEM is a figure that represents the average dollar amount that households spend each year. There are a number of different HEM categories, and your mortgage broker and lender will match your spending to a specific list of items that will be assessed to measure your borrowing power.

You will be required to officially ‘declare’ living expenses in your loan application, but a lender could also consider your actual living expenses. They can do this by assessing your bank accounts’ daily transactions and credit card statements to verify your declaration.

When a lender assesses your loan, they will likely consider the higher of your HEM category and actual living expenses when determining your ability to repay a loan. It is therefore important that you are conscious of your actual spending habits. These living expenses will then be deducted from your income to determine how much money you would have left over to repay a home loan.

The difference between the HEM and your declared living expenses is that the HEM is based on generic factors such as your location, the number of children you have, your marital status and your lifestyle. Your lifestyle is based on an annual spending amount – not your income and tax bracket as some may assume.

Get started now!

You can and absolutely should prepare your finances prior to your loan application. Whether you can pay down some of your current debts, cut back on a little extra spending, or improve your credit score by paying all of your bills on time.

Make sure you speak with a Bernie Lewis Home Loans Mortgage Broker so that we can guide you through ways to clean up your finances and make the application process simple. With many years of knowledge and expertise, we can put the most favourable case forward to the lender.

Important Information

*The information provided in this article is general in nature and does not take into account your personal circumstances. Since everyone’s personal situation is different, this article should not be taken as advice. Market commentary is based on recent economist reporting and references can be made available upon request.

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