Assets- what % of income do banks consider when applying for a loan.

hey team,

Been advised banks consider up to 80% of residential rental income for serviceability, when applying for a loan.
What do other asset classes give, commercial?

Anything higher than 80% ?

Cheers.

 

There are commercial loans that will use just the lease of the property you're purchasing to service the loan, no other income required. It's completely different to resi.

 

Hey Jess,

So 100% of the rental lease income?

 

Banks use 80% because the other 20% is used as a rule of thumb to cover holding costs like vacancies, property management, maintenance, rates, etc. For residential lending all lenders have a similar rule. Recently ANZ increased it to 25%, but I can personally see an argument for using 30%.

For commercial properties there are loans that will only look at the full rental income of that property. They won't give any real consideration to other properties. This tends to be known as a "Lease Doc" loan. They use all of the income as described by the lease agreement.

Most commerical loans however will assess in a similar manner to residential loan using 80% of residential rent. Commercial rent is considered a bit differently as often the holding costs are covered by the tenant - it depends on the lease.

 

Thanks team, can you please explain below so I better understand.
I believe I have confused myself.

Hypothetical..

No loans owing anywhere.
No job providing any income, only income is from residential rental.

You have a residential home fully paid off generating 1200/week in rental income.
That's 62,400 a year without any expenses taken into consideration. With real expenses, agent fees, maintenance etc etc is roughly 30%.
62,400-30%=43,680 a year clear, minus some government tax of 6272, gives you clear 37408. (Rough calculations and taxes simple.)

Now I decide to go get a loan for an investment with the above scenario.

Which figure do lenders use as my income for serviceability?


62400
43680 -30%, but some do 20%
37408
?

 

$1200 x 80% roughtly

 

Thsnks terry.

What if you owned commercial realestate outright, giving you 1200/week in rent?

Still 80%?

 

i don't know. I can't say I have ever had a client who personally owned a commerical property. Most people that own commercil property do so through companies and trusts.

 

Please excuse my ignorance. Borrowing % if earning through a trust?

 

It depends. Lenders can look at the last 2 year financials or sometimes they will just assess the property as if owned by the individual - strictly speaking they should do this though.