Your client’s monthly expenses will affect their borrowing power. What composes monthly expenses, and how do lenders calculate how much your client’s monthly expenses are?
Monthly Expenses
Your client’s monthly expenses are impacted by the size of their family. Larger families have more significant monthly fees. When your client completes a mortgage application, they will have to estimate any regular ongoing payments they pay monthly. These include:
- Rent or board
- Clothing or personal care costs
- Education costs, including uniforms and textbooks
- Cost of groceries
- How much they pay in insurance a month on all of their plans.
- Transportation costs, whether public or money spent on petrol, insurance, repairs, and registration
- Transportation costs, whether public or money spent on petrol, insurance, repairs, and registration
- Any connections they pay, such as phones, internet, streaming services, and subscriptions
- Any childcare costs they may have
- Medical care costs, whether specialist or general practitioners
- Any entertainment or recreation costs
- Charges for their owner-occupied property, such as utilities, taxes, and fees
- Other items they pay monthly, such as loan repayments
Lenders will use your client’s bank statements to verify monthly expenses.
How do banks calculate monthly expenses?
- They will use the Household Expenditure Model to determine the minimum your client should be spending a month based on their family size and income.
- They will ask your client to self-assess the costs listed above.
- They will review your client’s bank account and credit card statements to verify the self-assessed expenses.
- They will then take the higher of the two calculations to calculate your actual living expenses.
This calculation will determine if your client’s loan application is denied or accepted.
You should work with your client to help them accurately assess their living expenses when filling out a loan application. You can also partner with Mortgage Street. We can help provide an accurate guess of whether your client’s loan application will be approved based on their living expenses. We can also help your client strengthen their application and find a home loan that fits their financial situation.