How Do Banks Verify Your Living Expenses?


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Russell Munfaredi

Russell Munfaredi is the Managing Director and owner of Mortgage Pros. Russell’s wealth of knowledge, unstoppable drive and impeccable service has been the key driver of Mortgage Pros’ success.

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Banks and lenders carefully verify various factors to determine your borrowing capacity when applying for a home loan, including your living expenses.

When evaluating home loan applications, banks typically use various methods to assess your living expenses. But in reality, each household lives a different lifestyle, and tracking your living expenses may be difficult. That’s why a common benchmark is important in assessing home loans.

That’s where the Household Expenditure Measure (HEM) comes into play. It is a benchmark designed to evaluate living expenses and a borrower’s loan repayment ability.

You may also seek a mortgage broker to review your bank statements and credit accounts. Here’s everything you need to know about how banks verify your living expenses.

Household Expenditure Method (HEM)

Your HEM figure depends on your family size, monthly income, location and lifestyle. 

While banks do not solely rely on this benchmark, it’s a good enough metric to evaluate your living expenses since applicants do not usually spend less than the estimated HEM figure every month.

HEM Example

For instance, say you are a couple with 2 kids and an annual income of roughly $90,000.

Deducting taxes at approximately 22%, that puts you at $70,200.

With a minimum HEM figure of about $42,888, excluding rent payments, that sums up to: $70,200 – $42,888 = $27,312

You have $27,312 annually to pay for your new home loan.

However, note that this measure may not consider additional expenses such as private school fees, health insurance, and other costs on top of the basic HEM figure.

HEM benchmarks may vary across banks and lenders. Speak with our mortgage brokers today at 1300 030 388 or enquire now.

Home Loan Application Form (Self-Assessment)

The Australian Securities and Investments Commission (ASIC) called for more responsible lending guidance, particularly on using HEM benchmarks to measure the plausibility of living expenses.

That said, many banks require loan borrowers to complete a self-assessment form when applying for a home loan.

That way, your lender gets a first-hand idea of your living expenses as you’ll have to disclose your spending on certain categories, such as:

  • Housing
  • Food
  • Healthcare
  • Transportation
  • Education
  • and other recurring costs

Your self-assessment plays a vital role in lobbying your home loan application. We recommend making a precise and honest self-assessment, so you get a fair offer and avoid getting approved, only to struggle financially afterward.

Banks will review your account records and credit card statements

Banks and non-bank lenders also check your bank account records and credit card statements to understand your financial status and spending behaviour.

They use this information to cross-reference and justify the authenticity of your self-reported living expenses.  

Moreover, taking a loan from your savings bank streamlines this process as they can easily access your transactions.

Otherwise, you’ll have to submit the latest bank statement and your bank will inspect if debits and transactions are not lobbied on your application.

A quick tip!

Banks take your average spending and evaluate its consistency to verify your living expenses.

In short, banks look for patterns in your financial documents. The more your financial documents align with your real spending patterns, the easier it is for your bank to make the right finance offers.

The loan assessment procedure may consider any differences or inconsistencies in your financial behaviour.

If any inconsistencies are found, your bank or lender may ask you to explain such discrepancies or update your declared expenses to match documented spending.

Through such changes, it will be possible to assess your financial status more accurately and ensure that the loan amount given is reasonable.

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Get approved for your first home loan

Lenders utilise a variety of benchmarks and methods to evaluate your living expenses and make a reasonable home loan offer.

As a borrower, you must provide accurate and honest information about your living expenses. The more you try to deceive to get a higher loan, the more you’ll struggle with paying the loan—if you even get approved.

Talk to our mortgage brokers at 1300 030 388 and we’ll take you through lenders in our panel that best suit your living expenses and financial goals.

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