It’s estimated that the average family spends around $170 per child per week, with the greatest costs in the first year of having a new baby.
Living expenses with children are certainly a lot higher than they are for singles and couples so how can you improve your home loan borrowing power?
How much can you borrow?
Living expenses with children can vary dramatically depending on the nature of your family unit:- Borrow up to 105% of the property value: You can borrow the full purchase price of the property including the cost of Lenders Mortgage Insurance (LMI) if your parents can act as guarantors.
- Borrow up to 95% of the property value: You must be in a strong financial position and borrowing within your means.
- Currently pregnant: Expectant children are not classed as dependents so the lender will instead want to know what your financial plans are when on maternity leave and if and when you intend to return to work.
- Children is over 18: Lenders vary in how they assess your borrowing power and it can vary greatly depending on whether your child is financially-dependent on you or not.
- Paying child support: If you are paying child support then this should be included as an expenses but you should put zero children in your application as otherwise this expense will be counted twice.
- Families with more than four children: Larger families may find that lenders vary significantly in the way they assess your monthly expenses so it’s very important that you assess your own living expenses accurately to make sure you borrow a reasonable amount.
Are there solutions if my living expenses are too high?
Yes!
Having dependents shouldn’t stop you from qualifying for a home loan.
In some cases, you may be able to make reasonable reductions to your spending to enable you to borrow more.
You can typically educe your spending on discretionary or non-essential items that won’t affect your basic living expenses.
Childcare and education expenses, groceries and health care are areas where you will not realistically be able make significant deductions because they are essential when you have children.
Areas where you can cut spending include:
- Gym memberships.
- Child subscriptions and streaming services like Netflix.
- Ordering take-away.
- Taking less family holidays or going on smaller vacations locally.
- Luxury item spending such as toys, games and brand name clothing.
Read more about being declined for high living expenses and then give us a call on 1300 889 743 or complete our online enquiry form today.
We can help you build a strong case with evidence and apply with a lender with less restrictive borrowing power requirements.
What additional expenses are included when calculating living expenses?
A major lender will also include the following additional expenses when calculating your monthly living expenses.
- Additional primary residence (e.g. strata, gardening, home help services, land tax)
- All secondary residences (e.g. a holiday home that is not rented out)
- Private education (e.g private school fees, tuition fees, books, materials and uniforms)
- Personal insurances
- Counselling
- Beauty treatments
- Overseas travel
- Recreational vehicles and insurances
These expenses are included as part of their responsible lending and regulatory obligations and to capture living expenses at a granular level.
By accurately capturing your monthly living expenses, the bank can provide an accurate figure of how much home loan you can afford.
Are you paying child support?
If you have one or more children with an ex partner and your children are not under your care, it’s crucial to include your child support payments in place of including your child or children as dependents.
Alternatively, if you’re the prime carer for your children following a separation or divorce, there are some lenders that will use 100% of child support income when assessing your borrowing power.
This can greatly increase your chances at approval and allow you to borrow the amount you need.
To prove child support payments, you’ll generally need to provide:
- A copy of the Family Law Court Order.
- Bank statements showing credits to your account.
- A letter from your solicitor.
- A letter from the Child Support Agency (CSA).
Are you expecting to have more children?
Any changes to your financial situation over the next 3 years will need to be declared to your lender or mortgage broker when applying for a mortgage.
Having more children is a significant change to your financial situation.
To put that into perspective, the latest Household Expenditure Method (HEM) puts average monthly spending for a couple at around $4,118.
This jumps to around $630-$700 for each additional child, so the average expenses for a family of four is upwards of $5,500 per month.
That’s not to say that you shouldn’t have more children!
You just need to declare this in your monthly expenditure declaration.
You shouldn’t have a problem getting approved as long as you’re in a strong enough financial position to afford the mortgage repayments plus you’re new living expenses with children.
If your borrowing power is already tight, it may either mean that you’ll need to come up with a bigger deposit or your borrowing limit will be reduced.
Is your adult child living at home?
It is not uncommon for children over 18 and even into their late 20s to be living at home.
In most cases, adult children earn an income, whether it’s part-time for study or full-time, so they are not entirely financially-dependent on your income.
If your children are paying board, some lenders will even consider using your child’s rent as extra income for your mortgage application which can improve your borrowing power.
However, if you’re covering some of your adult child’s expenses such as meals and bills, you will need to declare this in your living expenses declaration.
Discover if you qualify for a home loan
Call us on 1300 889 743 or fill in our free assessment form today.
We can find a lender that will take a common sense approach to your living expenses with children and build a strong case for how you will afford your ongoing mortgage repayments.
