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There are various income types and many lenders with different policies on how they take income and tax benefits for borrowing calculations for your home or investment property loan.

It’s understandable why home buyers end up confused as to what is acceptable and what is not. Please find below income types and how these are treated:

1. Full Time / Part Time Permanent Income (PAYG)

Only base income excluding superannuation can be used for borrowing purposes. Some lenders will allow you to borrow even whilst you are in probation. Being in probation does limit which lenders you can go to for your home or investment purchase.

Also remember that the loan to value ratio (LVR) of your borrowing also plays a role in your borrowing during probation. You can typically borrow up to 95% of the value of an owner occupied property (including LMI) whilst during probation.
After probation, there are a lot more lenders to choose from.

2. Second Job

Only very few lenders allow home buyers and investors to use 100% of their 2nd job income for borrowing purposes. Majority of the lenders require you to have been in your 2nd job for at least 1 to 2 years (or a set period depending on the lender) before you can use this income for borrowing purposes.

3. Casual Income

If you have been in a casual role for at least 3 months, you may have the opportunity to seek finance provided the 3 month casual income can be proven by way of salary credits in your bank account. These can then be annualised to determine what your yearly income would be. Having spent 6 months in a casual role again opens doors to various lenders as opposed to one or two banks only.

4. Contract Income (PAYG)

Contract income where regular payslips are received is very similar to standard PAYG permanent roles income. Some lenders will allow contract income to be used from the start (depending on the contract end date). This is applicable in particular to professions such as Information Technology and Doctors for instance where contracts are the norm.

5. Over Time Income

Typically lenders require you to have received over time income for at least 12 months. Though there are those that will allow over time to be used from the start and yet others, if you can show a 6 months history of overtime income. Overtime is very common in the medical profession as well as services industry. Overtime income can be handy when it comes to calculating and strengthening your borrowing power.

6. Bonus Income

If you can show two years’ worth of bonus history, received as cash, depending on the lender and the placement of the bonus during the calendar or financial year, you can use bonus income for increasing your borrowing power.

7. Self Employed

If you are a contractor with your own company or if you run your own business, you require at least 2 years of ABN and 1 year of financials as a minimum. Please note, minimising income to reduce tax does not help you borrow more. In fact it impacts what you can borrow for your home or investment purchase.

8. Other Income – that can be used for borrowing purposes:

* Pre-Tax Deductions / Benefits (especially in the medical & not for profit industries)
* Car Allowance
* Family Tax Benefit (Part A & Part B) – Excluding rental assistance
* Shares / Dividend Income (received over a period of time)
* Rental income from existing or prospective investment properties that you may own


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Note: Please ensure you always seek specific specific credit, tax, financial, legal or investment advice. Property Twins' Blogs are not a substitute for personal and specific, taxation, financial, legal or investment advice

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