Expenses and your borrowing capacity
Just as lenders have different views on how income is treated, the same applies to expenses.
Household expenses in particular are receiving much more scrutiny from lenders. Lenders are now generally wanting to go through your bank and credit card statements so they can see how much you are really spending a month.
Loans with other lenders
The net result of this approach is that it makes your loan repayments appear much higher than they really are. This can have quite a significant impact for property investors with several properties who want to keep building their portfolio. It is not unusual for property investors to hit a road block with their lender because they can not pass their serviceability test – even though they clearly have sufficient capacity to fund additional properties.
There are however some lenders that will assess other bank loans at their actual repayment which can significantly increase your borrowing capacity.
Your loan commitments will be based on total loan commitments of $800,000, not $600,000 (New loan $400000 plus half of investment loan) as many people expect. This is because as a party to the loan you are jointly and severally responsible for the debt. For example if your friend got injured and couldn't’t make their share of the loan repayments you would have to make the repayments or risk losing the property. Therefore the full $400,000 will be recorded as your commitment.
To make matters worse only half the rent can be used as your income as this is all you are legally entitled to.
Aside from the other issues and risks that can be associated with joint ventures it is worth considering how it will impact on your future plans.
Credit card and personal loans
So if you have a card with a limit of $20,000, most lenders will view this as a $600 a month loan commitment.
In a number of the above situations some lenders will assess aspects differently which will be more favourable to your borrowing capacity which is why is important to have your situation properly assessed by a broker. If you only talk to one lender you will be limited to their policies.
Contact us to discuss your home loan requirements or a for a review of your current lending.