Why Your Savings Don’t Always Impact Your Borrowing Power (And What Lenders Actually Look At!)

Jaimi: Welcome to Home Building Like a Boss, the podcast dedicated to helping first home buyers in Perth build their dream home with ease and excitement. I’m Jamie, your host and go to building broker. Are you ready to feel empowered, in control and excited about your building journey? I’ll help guide you with expert advice, insider tips and tricks and real life stories to help you navigate the confusing world of home building.

Tune in as I take you on the journey to building your home like a boss.

Hello, and welcome back to another episode of the podcast. I’m your host, Jamie, as always. And today I have Tanya back with me to chat about some 

Tania Mondon: finance things. Hi guys. Happy to be back. We had a little break, didn’t we? Yeah, but I am caffeinated, so I’m ready. We’re ready to roll. 

Jaimi: Amazing. Tanya, let’s start off with a finance fun fact for today’s episode.

Tania Mondon: Well, this morning I got an email to say one of the major lenders has released a new, I don’t want to say scheme, but like a new policy update. So. This lender is one of the major banks and even if you’re a second home buyer, you may be eligible for this. You could provide only a 5 percent deposit and still have the lender’s mortgage insurance waived if you are.

A general practitioner, a dentist, hospital employee, doctor, or a medical specialist. So if you want to find out if you’re eligible, just send Jamie or I an Instagram message and we can give you some more information. Cool. I like that fun fact. Yeah. Yeah. It’s really cool, especially because it’s outside of the scheme, so it could literally be anyone.

There’s no restrictions to you being like a permanent resident or citizen or anything like that. So amazing. Opens the doors for some people. Yeah. Yeah. Yeah. 

Jaimi: Cool. All right. And today’s episode, we are going to chat about how your savings and deposit does not impact your borrowing capacity. I know sometimes we have a lot of people reach out and they’re asked, I’ve got a 30, 000 deposit.

How much can I borrow? And that’s not a 

Tania Mondon: thing. Not a thing. I can’t tell you how much you can borrow based off. Yeah. Because it’s all based off your, your income and your debts and that’s how they figure out how much you can actually afford for a home loan. 

Jaimi: Okay. So they’re basically two separate things essentially.

Completely separate. So how do you work out someone’s borrowing capacity? What do you need and what do you take into 

Tania Mondon: consideration? So I take into consideration your actual income and it has to be consistent income. So if you have a base, then we would usually take that base salary as. A hundred percent and anything extra, some banks would allow a hundred percent, depending on your profession.

Most of them will shade your allowances or bonuses. Every bank is completely different. So I’ll look at that firstly, your consistent income. And then secondly, I’d look at your liabilities. So any existing debts you have. It could be buy now, pay later, it could be credit cards, car loans, personal loans, a HECS debt.

If you have anything. Everyone always forgets about the HECS debt. Yes, it is a loan. And some people don’t add it in because they haven’t started paying it yet. But I still need to know the information because it is going to be a liability that you eventually have, but they might not actually include your Hex debt as the liability just yet.

But it’s still good to let us know if you’ve got one or not, but yes, we look at your liabilities as well. And we just put into a few different bank calculators and it tells us. how much your borrowing power will be. We also add in your living expenses. So if you have private health insurance, that is added as an additional expense over your monthly living expenses.

So that can also decrease your borrowing power. So just keep that in mind as well. So 

Jaimi: ideally your living expenses, you shouldn’t be spending and splurging too much. You want lower. Living expenses higher income and lower 

Tania Mondon: debts. Yes, more money in your pocket. Yeah, because that shows that you can really afford the mortgage Yeah, 

Jaimi: and what happens if you have too much debt or too many debts a huge car loan 

Tania Mondon: credit cards Oh car loans are like the worst because I just had one recently And the car loan repayment was 1, 200 a month, which is almost how much their actual mortgage is.

So now because of that car loan, they actually can’t afford to refinance their mortgage just because of a car. So that’s really, really affected them. Car loans are the most annoying ones to deal with. So if you’re not able to pay that off and close it, um, I would look at trying to Extend the loan term if it’s going to help put more money in your pocket each month.

Yeah, so 

Jaimi: bringing those repayments down. Yeah, 

Tania Mondon: the commitment down each month, that would be. Yeah, the most frustrating one car loans. Yeah credit cards. They do go off your limit So if your credit card has nothing owing but your limit is like 6, 000 The bank can see that you can go spend that 6, 000 at any time So they’re going to treat it as if that is a debt a current debt So if you want to help you borrowing power close off the credit card close it down when people Make their inquiries.

If I can see that they’re struggling with servicing, I do let them know, like, if you can pay off the credit card, your new borrowing power would be this. Or if you can pay out your car loan or sell your car and buy something more affordable, your borrowing power would be that. Yeah. And it just helps them figure out their priorities.

But 

Jaimi: yeah, a few different options. A, B, and C. If you keep it, if you get rid of it, if you do 

Tania Mondon: this. Yeah. Yeah, yeah. That’s always helpful. And most of the time people really want the house, so they’re willing to do anything. Yeah, absolutely. To get there. 

Jaimi: Yeah, for sure. And now, so. We’ve got borrowing capacity, which obviously goes off your income and your debt and your living expenses.

How then do the savings tie into 

Tania Mondon: it? Well, your savings is what the bank needs for settlement, and they also need genuine savings before we can even apply to the bank. People always email saying I have like 50 grand saved. How much can I borrow? And I’m like, it doesn’t work that way. I need to know your income and your debts and your employment terms.

What job do you have? Are you full time, part time casual for me to determine how much you can even borrow? So at that point, the amount of savings that a client has means absolutely nothing. It just shows me, great, they have savings. They’ve probably met that 5 percent genuine savings amount already. But as for the funds for settlement, that all depends on if you’re billing, buying, paying stamp duty, second home buyer.

So it’s really hard to say, I do need like all that information to determine how much you can actually borrow. Yeah, there’s so many different 

Jaimi: factors. Yeah, for sure. And then, so once you have Worked out their borrowing capacity, let’s say it’s 500, 000 and they had 50, 000 savings, what would their total package be, roughly?

Is that your, are you going to like, plus that together? So if you have their loan amount and then their savings, that essentially equals 

Tania Mondon: their house and land package? Sometimes. If you’re a first home buyer, then generally that’s how it works. But for second home buyers, it would be a little bit more because they’re not.

That’s only, yeah, 

Jaimi: because of stamp duty and things like that. But essentially your deposit is going on top of your loan amount. So you can loan a certain amount from the bank, but then your savings is giving you a little bit extra money to use for a house or house 

Tania Mondon: and land package. Yes, that’s correct.

Yeah. And that’s how they tie together. Yeah. So your savings is important. Um, also most of the time it does have to be genuine. Yeah. Unless you’re giving like a really big deposit, usually 10 percent or 20 percent you can just have gifted funds and it will just fly through with some lenders. But I always say, just save genuinely from your pay slips over a three month period.

It gives me the confidence that you can afford the loan. It would also give. Like the client, yeah, the confidence, cool. I’ve been saving, I can actually afford this mortgage and also shows the bank that you’re capable of saving, which is just all those little things are just really good to do. Yeah. Yeah.

Good 

Jaimi: habits to get into. 

Tania Mondon: Yeah. Yeah. 

Jaimi: All right. Well, I think that wraps us up for today’s episode about. Borrowing capacity and savings and deposits. So thank you so much for joining me Tanya. You’re welcome. If you guys have any questions or you want to get some more info about anything we’ve chatted about today, feel free to DM either of us on Instagram and we can do a free finance healthcare check for you.

Thank you so much for tuning in to the home building like a boss podcast. I hope you enjoyed today’s episode and learn something new. Remember. You’ve got this and I’ve got your back. Until next time, stay inspired, stay informed, and stay confident on your building journey. I can’t wait to chat with you on the next episode.

Don’t forget to check out the show notes for more information and free resources. If you haven’t already, hit that subscribe button so you never miss an episode of the Home Building Like a Boss podcast.