If you earn all or part of your income from investment sources you might find difficulty in getting the bank to accept these as income sources for approving your home loan.
In simple terms the bank will lend to you on the basis that you can pay back the loan over the term of the loan. They want to verify that you have sufficient on-going income to make the loan repayments every month.
A key issue here is that investment income can be lumpy and of uncertain amount. For example share dividends may only be paid once a year and the dividend amount may change each year. Or in a bad year there may be no dividend
How each bank makes an assessment of your investment income could vary enormously so the bank’s policy on how it calculates your income will be very important to you.
Here are some of the income issues to be explored:
- You are likely to be asked for 2 or 3 years documented history on non-property income such as shares. Income from recent share acquisitions may not be accepted.
- Depending upon whether your investment income has increasing or decreasing year-on-year the bank might use the highest, lowest or an average of your income
- Capital gains income is often excluded as it’s usually not on-going annual income
- Deductible interest may or may not be considered in calculating income. For property investors this is an extremely important issue
- Rental income is usually discounted to allow for property costs. Commonly 80% of rental is used by in some cases rental income could be further discounted or excluded all together.
Key Finance has the calculators for each lender on our panel so we can provide you with more accurate calculations of how much you can borrow.