In particular we focus on getting the loan structure right the first time, choosing which lenders to use in the right order (yes this is important) and finally getting our clients the best deal possible.
What do I do if my income is outside base or usual income?
Marty McDonald
Following the latest APRA requirements, many banks have introduced policy changes to their net surplus calculators. These changes see a tightening on what types of income is accepted when applying for a loan. With certain banks, different incomes such as commission, overtime, shift penalties and bonuses are only accepted 50% as a common practice or not at all. However particular lenders still accept up to 100% of this unusual income. Policies can be quite strict but working with an expert that knows them inside out can insure that you get the best set-up for your specific situation and income type.
Commission
For certain industries, commission can make up a large proportion of total income. For these individuals, a lot of time can be wasted applying with lenders who don’t accept this as income or accept a low percentage. Due to the fluctuating nature of this income banks are increasingly cautious. However, there are banks that accept 100% but on certain conditions. Some banks while stating they take 100% commission limit to no more than double base income which won’t suite certain commission based professions. Employment stability plays a large role in this decision. Lenders take into account; the length of time in current job, time in industry, volatility of industry, and consistency of your income. In addition, there are some more complex factors that are lender specific.
Overtime
Lenders often don’t consider overtime income when they assess a home loan. If overtime is substantial and on a regular basis some lenders may accept 50%. In situations where your field is considered an ‘essential service’ some lenders may consider up to 100% of overtime as part of their assessment.
These essential services are:
- Healthcare (in particular, if you are a nurse, overtime income is readily accepted)
- Police, Fire and Rescue
- Emergency Services
- Education
Every lender has a different policy when accepting shift allowances or penalties. For it to be deemed as assessable income, lenders need to confirm the penalty pay has been regular and will continue to be. For example, one lender on our panel accepts 100% of shift penalties or allowance if the borrower has had 6 months in a current job, or 12 months in the same field/ line of work.
These essential services are:
- Healthcare (in particular, if you are a nurse, overtime income is readily accepted)
- Police, Fire and Rescue
- Emergency Services
- Education
Shift penalties or allowances
Many lenders have outdated policies regarding shift allowances. While this is a common form of income for many Australians it is outside the usual hours of employment and banks can deem this as unreliable income as circumstances can easily change.
Every lender has a different policy when accepting shift allowances or penalties. For it to be deemed as assessable income, lenders need to confirm the penalty pay has been regular and will continue to be. For example, one lender on our panel accepts 100% of shift penalties or allowance if the borrower has had 6 months in a current job, or 12 months in the same field/ line of work.
Bonus
Many lenders flat out will not accept bonus income. For persons employed in the banking sector where bonuses are often more than base salaries, this can be a problem. However some banks take a more flexible approach than others. That is why it’s important to choose a lender that best benefits your situation.
- - For monthly or quarterly bonuses lenders can accept 80% to 100% of the bonus income. They must be paid regularly and a letter from your employer can be provided with the application. With a minimum three months history you can borrow up to 90% LVR
- - Annual bonuses are a little bit tighter in regulation, a few of our lenders accept up to 100%. However you must be able to provide payslips detailing the bonus amounts received over the past 2 financial years to prove this income is ongoing
About the Author: Marty McDonald is principal of mortgage broker “Mortgage
Experts”. Marty specialises in assisting active property investors with loan structuring advice and
implementation as well as helping credit worthy borrowers with slightly outside the box income and employment
situations. Find Marty on
Facebook and
LinkedIn.
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