Overtime and Borrowing capacity

I am able to pretty much double my income in my job through overtime. How does it work in terms of borrowing capacity? What do lenders need to see to take this extra income into account?

 

The overtime I did in the last five years bumped up my Tax Summary total so increased my borrowing capacity based on annual income. I had to provide a few recent salary slips, from memory. Can't remember if I had to provide the summary.

 

My understanding is most lenders will take 80% of this which can be used for servicing.
I would be interested to know if any take 100%?

 

So would you need to have increased the income over a whole year before they will look at it?

 

@Bender12, general rule of thumb is most lenders will take 80% if you have 1-2 years of evidence (e.g. PAYG summary, ATO notice of assessment, YTD payslips).

There's a few out there that are ok with as little as 3 months via YTD payslips.

 

I see thanks @Steven Ryan. Thats helpful as I can plan my income for the next financial year.

 

In a similar vein can any of the brokers please let me know the impact of a second job on serviceability, assuming it is a regular (PAYG) casual job, eg with a labour hire firm, regular fortnightly payslips etc. Is this income treated as 100% or discounted to 80% similar to OT? Thanks

 

If the overtime is regular income and is a condition of employment (we need something from the employer to confirm that overtime is a condition of employment) then Adelaide Bank will take 100% of the income and their new calculator is outstanding.

Bankwest and Gateway are another example however their servicing calculator is poor so its not just a case of who takes 100% of the rest of their calculator looks like.

CBA is another one but if you are an investor with massive IO loans then their servicing calc isn't going to be strong.

Macquarie also take 100% of the income.

NAB is probably the "best" lender taking this income but be careful not to use them to early in your portfolio.

 

Most lenders are now only taking 80% of overtime, commissions, bonus and other elements of PAYG income that aren't contractual. There are a couple of exceptions to this, a few lenders will still take 100%.

As evidence of that income, many will use the year-to-date on your payslips as long as it reflects at least 3 months from the start of the financial year (hint: don't rely on these forms of income between July and September).

A PAYG summary can be used as evidence, but it can be tricky to prove if you've since had a pay rise. If you've recently changed jobs you might need to wait a while.

My experience is that people almost always over estimate their income. A payslip or two are essential to determining serviceability.

 

Part of the changes last year saw more shading to inconsistent forms of income.

Nonetheless there are a few that do take 100% of overtime/bonus type income - usually verified via YTD (after 6 months) or PAYG summaries - depending on the time of the year. Homeloans i believe is another to the list Shahin mentioned that do take overtime at 100%.

The second job is usually treated at 100% income, its just like regular salary - it will be subject to the type of employment it is. Plenty have casual second jobs - going to suitable lenders will make a difference here.

 

Question slightly off topic but regarding income. Is there a minimum amount a self employed business would need to make to be eligible for servicing?

For example if you had a business with 2 years financials showing 5k annual profit, would they consider this?

 

Yes they would.

 

yes

 

Every dollar of profit is considered. Hopefully the $5k profit would be in addition to the salary or dividends issued to the owners?

$5k won't go very far on it's own.

 

When it comes to self employed income always get your banker or broker to review the documents - you may have considerable add backs (additional superannuation payments, interest payments and depreciation) which may be used in the application and thus increase your servicing/borrowing capacity.

Not all lenders use all forms of add back so it will be dependant on the lender and even the LVR.

 

Hi,

I stumbled on this great post and thought I'd ask a question.

My current borrowing capacity was assessed to be 400k with my current FT job only. I've started a second job, been doing it for almost a year now, while keeping my FT job.

Generally, how much can banks lend for every extra, say 10k you earn?

I don't have any credit cards, no dependants, stick to weekly budget ...

 

It's hard to say - some might say the general rule is times 5 - but it's not usually that simple.

Cheers

Jamie

 

Changes with every lender - with some lenders they won't accept single job income, others a %, others 100% - that's just one layer of complexity on top of all the other policies of each lender.

 

With some lenders if you are 3 months into the financial year (October 1 on) will use annulised income. Needs to divided up between base wage and overtime as the later is taken at 80%.