Brokers who are assisting their clients with various financial aspects of the loan application process should be able to explain the differences between grossed-up income and net income in order to provide their clients with adequate information.
Gross income refers to the total salary a client has received from their employer before deductions or taxes have been taken out, including income tax, Medicare Levy, and salary sacrificed amounts. Gross income includes bonuses, salary, hourly wages, hourly income, tips, dividends from stocks and bonds, and savings account interest. The deductions of gross income include income taxes, Medicare Levy, and salary sacrificed amounts. Gross Income Calculators are online tools that can allow brokers and their clients to easily calculate gross income.
Net income refers to the part of a client’s gross wage that is left over after deductions and taxes have been taken out and is also called take-home pay. So, net income is technically the opposite of gross income. Calculating net income is an easy feat, just take the client’s gross income and subtract all deductions.
Brokers use their client’s gross and net income during the loan pre-approval process to determine if the client is capable of making the required mortgage repayments, as well as determining their overall risk factor as a borrower. Brokers will also perform in-depth checks on their client’s credit scores, financial history, existing debt, and financial responsibilities.