Your Home Loan Application and Household Expenditure Measure (HEM)
Your living expenses play a huge part in determining how much you can borrow. They can even determine whether you can truly afford a home loan at all! You may be thinking that your deposit and regular income will be enough to buy your dream home, but this is not always the case.
A successful loan application can be determined by two things, Household Expenditure Measure – HEM and living expenses.
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 different HEM categories and your mortgage broker and lender will match you to a corresponding HEM category.
You may ‘declare’ living expenses in your loan application but a lender will also consider your actual living expenses. They will do this by using your bank accounts’ daily transactions and credit card statements to verify your declaration.
When a lender assesses your loan, they will likely take into account 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 might 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.
In conclusion, you can prepare your finances for your loan application. You can pay down your current debts, cut back on spending and 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.
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Bernie Lewis Home Loans Pty Ltd ACN 008 284 544 Australian Credit Licence Number 388 533. The information provided is general advice only. It has been prepared without taking into account any of your individual objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. 68 Greenhill Road, Wayville, SA 5034.