For providing approval on any type of home loan, lender/credit providers need to know your financial condition. They ascertain your income by calculating your salary, overtime, bonus, etc. along with your expenses like repayments on loan and credit cards. They will also consider your PAYG employment type for determining your suitability for the loan.
If you are a first-time home buyer, an investor or you are looking at buying another home to live in and use as your primary residence, you need a home loan. And, when you apply for home finance solutions, lenders ascertain your financial condition by taking a look at your income.
The Need of Income Verification Process
In today's working environment, people move jobs more frequently to multi-skill themselves or for better working conditions and benefits. In some job categories, employment contracts are arranged and set for a number of years, and casual employment is also on offer.
Income verification is a key criterion used by lenders/credit providers when they assess a person's suitability for a home loan. The process is required to establish whether or not you can afford the repayments, and it is incumbent upon lenders/credit providers to act responsibly when assessing a home loan for approval.
Documents for Income Verification
Examples of the type of information that you may need to provide for your verification of income include:
>> Your latest pay slips
>> Your recent payment summary (Group Certificate) and Income Tax Return, and
>> Confirmation of your employment
Income and Expenses - "Serviceability" Calculations
In order, to determine your ability to meet your loan repayments, the lender/credit provider will use your current yearly salary as a benchmark, and they will perform a calculation known as a "Serviceability" calculation. The calculation will assess your ability to repay your home loan, both now and in the future. Most lenders/credit providers may consider your bonuses, overtime, etc. when determining your income, and they will use the following percentages when calculating your income:
>> Salary Wages - usually 100% of this figure
>> Overtime - usually 50% of the average income, if consistently earned over 12 months
>> Bonuses - if consistently earned over two years
>> Rental Income - up to 75% when received as income (this allows for untenanted weeks)
>> Investment Income - this includes interest and dividend income if regularly received over two years
>> Family Allowance - Centrelink benefits may be used in the calculations where dependents are under the age of ten years
In addition to determining your income, you current expenses will be considered for determining your ability to meet your home loan repayments. Your expenses can include:
>> Other Loans - Your monthly repayments for any loans not being refinanced
>> Credit Cards - This includes the "limit" of your credit cards (not the balance outstanding)
>> Living Expenses - These are expenses that can be associated with living life on a day-to-day basis, and are meant to include things like food, insurance, utility payments, clothing costs and education expenses, etc.
Most lenders/ credit providers will consider the following PAYG employment types when assessing a person's suitability for a home loan:
>> Permanent Employment - You should have a minimum of six months in your current employment. If you have less than two years in your current employment or you are on probation, you will need to demonstrate two years’ employment in a previous job and the same industry
>> Permanent Part-Time Employment - You should have a minimum of 12 months in your current employment
>> Casual Employment - You should have a minimum of 12 months in addition to your normal employment
>> Contract Employment - You should have a minimum of 12 months in your current employment
>> Second Job - You must have two years of continuous history in the position
So, now that you know about the income verification process of obtaining a home loan, it will be easy for you to keep all your documents ready. But, don’t worry if you are confused about your income, expenses or any other thing, you can employ the services of an expert finance broker to help you with your home loan. He/she will understand your situation and provide you with optimum solutions and help you in managing the loan process effectively and successfully.
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