Banks. Minimum monthly expenses and dependent calculations

Hi all
We are looking at selling up and buying a Bigger place.
The bank says cos we earn a bit more that our expenses should be higher. So they say work it out on $4000 per month for expenses

we went through 9 months of bills and amd credit card statements come up average of $1700 per month but bank won’t attempt it.

is there away around this??

also with this in mind. The bank drops you’re borrowing capacity by about $40k per dependent.

how do they work that out?
My kids are under 3yo and even if I sent them to private school (not that we would) they wouldn’t cost that much extra. if they think it cost 40k extra to raise a dependent shouldn’t my living expenses go down due to the 40k include there living expenses therefore increasing my borrow capacity??

 

Each lender has a different approach to HEM / living expenses and use slightly different benchmarks.

If it has reduced your borrowing capacity by $40K per dependent then keep in mind that is $40k over a 30 year term, not $40k per year....

Also they're accounting for the fact that cost of living will increase for dependents over the loan term. EG: Two parents and two 3 year old children vs. two parents and two 15 year olds will be treated the same from a HEM perspective despite the former spending significantly less.

 

If you want the best chance of getting the best borrowing capacity then I suggest getting in touch with a good broker who can tell you your different borrowing capacities with different lenders, sticking with only one bank is limiting your options.

 

Same happened to us. Our expenses spreadsheet for last two years show an average of $3200 per month all inclusive. Bank say it should be $4000. We were paying dirt cheap rent so thought bank may have considered a median rental value. How wrong we were. Bank hadn’t even included rent in their calculation. Turns out our borrowing capacity is less than couples earning less than us.

 

Is this with kids? Our bank accepts our $2000 per month as a couple so $1000 each living expenses per month.

 

No kids with both of us working. Bank says our expenses would be more as we both work full time.

 

Too true. It is way more than HEM, the type of expense can also sit outside HEM with some lenders. Not to mention things like different lender assessment floor rates and lender policy that have a huge impact.

I've got a great example of this at the moment which is a small loan/refinance from 4.49% with a smaller lender back into the mainstream at 2.79% and borrowing capacity differs by 80% between the only two options where the valuation works!

 

Good time to get a broker as it's quite possible your lender is the issue here

 

Generally speaking, lenders minimum living expenses are determined by NET income amount, no. of dependents as well and not all lenders min living expenses are the same

 

We are buying in lend lease developed estate which has buy back clause if we can’t build the house within 2 years from the settlement. Now bank says either remove the clause or get construction loan bundled together. Now I don’t know how this works out. I believe w/o fixed price contract, bank wouldn’t approve construction loans, and w/o land settlement builder won’t move on to fixed price contract. My subject to finance clause is expiring this Monday. My broker is advising request to extend the period while he negotiates with the bank. My concern is that what happens if he is unable to strike a deal with the bank, I may be in default and have to forfeit my deposit. I asked him to change the bank but he says that will take time. Please advise what are my options at this stage.