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How do banks assess "bonus" income?

Discussion in 'Property Finance' started by LifesGood, 21st Feb, 2016.

  1. LifesGood

    LifesGood Home Building & Development Consultant Business Member

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    Hi all, I'm a bit out of touch with the current lending environment so I am interested to know more on this topic.

    When calculating serviceability, how do banks generally assess a bonus income? My current situation involves a fixed commission amount for every new sale achieved, on top of an annual wage. This is noted on my monthly payslips as a bonus.

    I also receive a car allowance, so I would be interested to know how this is assessed too.

    Thanks for your help!
     
    Barny likes this.
  2. Barny

    Barny Well-Known Member

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    @Jess Peletier
    Also would love to know this.
    I've been earning 10-14k every year for ages in allowances which are not shown on my group certificate. Bom won't consider it as part of earnings. Com bank would only accept half of it, but wasn't easy.
    Any other banks that perhaps consider all of it as income?
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If allowances are shown to part of regular ongoing income, they can be taken at 100% in my experience - with CBA too, so I'm surprised to hear that @Barny. @LifesGood If the commission shows as a bonus, and it's regular, this can often be used too though only at 80%. Most lenders will want 2 yrs of consistency, but in the event it's paid monthly this would be pretty easy to get around especially if LVR is sub 80%.
     
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  4. Redom

    Redom Mortgage Broker Business Member

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    Depends on the lender, but most take the lower of the last two years bonus income.

    Some lenders are better in this space than others - so if a large percentage of your income is from bonuses/allowances/commissions than your lender choice may see a very large difference in your borrowing power.

    Note @LifesGood - 'commission' income and 'bonus' income and 'allowances' are treated differently. Commission incomes from sales type roles usually don't need such a long time period (in general 6-12 months will do with most lenders, instead of 2 years for bonuses).

    Allowances are separate altogether too. Easier still, can be done with much shorter time periods (payslips, 3 months, etc - depending on lender).

    In general order - whats most flexible in terms of lender policy:
    1. Allowances - can be included straight away in some cases, but usually shaved at 80% - some will take all of it.
    2. Commissions - can be included after a shorter time period demonstrating it (3-6 months min for most). This is assuming a PAYG commission earner.
    and then
    3. Bonuses - usually need longer history, for most 2 years.

    For most lenders, from about Oct 2015, most will take 80% of this income instead of 100. APRA specifically targetted non consistent income and Byres (Chairman) noted this in his big speech before all the changes reigned down.

    I find lots of expats/internationals earn a higher percentage of their income like this - lenders usually only take 80% of that income and then apply another 80% for FOREX - meaning only 64% of the incomes used. Again, lender choice can make a substantial difference here.

    Cheers,
    Redom
     
  5. LifesGood

    LifesGood Home Building & Development Consultant Business Member

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    Thanks for all the info guys.

    Redom I get exactly what you mean regarding bonus vs commission. That's why I'm confused as to how it will be assessed. Put simply, it is a fixed commission for every sale that my team makes. Just like my sales reps make a commission, as did I when I was a rep, I am now the sales manager and get a commission on every sale.

    The issue is, it's noted as bonus on my payslips.
     
  6. Redom

    Redom Mortgage Broker Business Member

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    Put it in loan notes, have an employment letter back it up, note that your in a commission/sales oriented role, and if your at 80% with suitable/flexible attitude lenders and you may be OK.

    I'd probably run that via credit to get an answer before submitting a deal if the yes/no decision is contingent on the definitional difference. If required, i'd also probably go to a lender where if an exception was necessary, i'd be more likely to get it (i find some are better/more willing in this space than others).

    Cheers,
    Redom
     
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  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    As Redom says, lender choice, a good explanation and running it past the lender before submission can vastly improve the odds of it being treated as commission rather than bonuses. Normally, ,bonuses in the traditional sense are paid 6monthly or yearly, so it shouldn't be too hard to get across the line.
     
  8. Jason Tyrrell

    Jason Tyrrell Well-Known Member

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    Many lenders take 80% of last year’s overtime or bonus in servicing. I got an email today from Citibank confirming their policy regarding Overtime/Allowance and Bonus incomes:

    Overtime/Allowance (Whichever the lower)
    • Annualised YTD overtime/allowance
    • 120% x last year total income – current year base income

    Bonus ( Whichever the lower)
    • Annualised YTD bonus
    • 120% previous year’s bonus

    Essentially will use all of it, provided not great jump from one bonus to another, or too big a portion of overall income in the case of overtime.

    Not a lender I deal with much, but they will also go to 85%LVR no LMI. So depending on your situation, maybe worth looking at.
     
    Last edited: 26th Feb, 2016