How your kids affect your mortgage.
When applying for a mortgage how much does the added expense of children impact the amount you can borrow?
26 July 2018
As Prime Minister Jacinda Ardern settles in at home with her baby daughter, we take a look at what impact starting a family can make on your ability to get a home loan.
The reality is that the added expense of children could lower the amount you can borrow. But you can minimise the impact if you plan ahead and do your research. Here’s what you need to know.
Children affect your borrowing power
Having dependent children can impact borrowing power in many ways. Firstly, kids come at a cost so lenders will factor this in when determining how much you can borrow. The amount a lender uses to accommodate for the cost of having a child can vary significantly.
Looking across Mike Pero’s panel of lenders, we found a $170 difference between the highest and lowest amount lenders add to an application to factor in each dependent. This $170 difference equates to about $25,000* in extra borrowing power. So it pays to shop around and get expert help when deciding which loan is right for you.
Lenders will also look for associated costs of children like childcare, medical bills, insurance and even sports club memberships. All of these can be taken into account in your loan application and may reduce the amount you can borrow.
Having a child often means one parent no longer works full-time. It’s no surprise that a full-time income stream can positively impact your ability to secure your dream home.
What about maternity pay?
The Government’s Paid Parental Leave Scheme is great for helping new parents cover weekly expenses and child-associated costs. However, it may not be recognised by lenders as income because lenders know the payments are on a fixed term.
The broker advantage
With the right help, it still may be possible to achieve home ownership on one salary or with dependents. It’s also important to know about the little things you can do that can improve your borrowing power like reducing credit card limits, for example. To read more on this see our blog here.
A good place to start is by talking to a mortgage broker. They will be able to assess your borrowing power and suggest which loan best suits your situation. For example, some lenders will consider part-time or casual earnings whereas others will not. Reach out to your local Mike Pero Adviser today.
*Lenders use a serviceability rate to determine how much customers can borrow. The average current serviceability rate on a 30 year principal and interest loan across Mike Pero’s panel of lenders is 7.59%. At this rate, for every $700 of available funds after liabilities and living expenses are deducted will allow the customer to borrow $100,000.