What is a Dependant?
A dependant is a person you support financially. In most cases, they are your children. Dependants can affect your borrowing power, which in turn, can affect how large of a home loan you can be approved for.
How do Dependants Affect Your Borrowing Power?
When assessing your borrowing power, lenders look at your income and living expenses. While you income doesn’t change when you have dependants, your living expenses do. The more dependants you have, the higher your income expenses are and the less disposable income you have. The less disposable income you have, the less money you have to put towards loan repayments.
When calculating your living expenses, most lenders use the Household Expenditure Method (HEM), but you’ll also have to provide an estimate of your living expenses. The HEM is a national estimate of the living expenses of the average family, and there are projections for families of every size. Lenders will compare your estimate and the HEM for your family size. They will then use the higher of the two when calculating your borrowing power.
Two important considerations to take note of when choosing which lender to apply with: each lender has their own minimum living expenses for larger families. In addition, some lenders put a cap on living expenses, meaning they don’t factor in your total living expenses beyond this cap amount.
At Mortgage House, we want you to get the most out of your home loan. We can help you increase your borrowing power so you can purchase the home of your dreams, even if you have a large family and many dependents.