There was a time when lenders simply took your declared living expenses (for the most part) at face value, taking little time to delve particularly deep into where an applicant’s outgoings were being directed. With lending restrictions tightening and bank policies toughening up, where you spend your money is being scrutinised more than ever.

There had been a move by most lenders to adopt the Household Expenditure Method, or HEM. This is a benchmark used to estimate living expenses based on factors such as the size of your income, the size of your household and dependents and whether you are located either metro or non-metro.

However, now an applicant is required to itemise their day-to-day expenditure that will be married up with their transactional statements to verify.  The areas of expenditure you are expected to declare as a monthly figure are usually:

• Groceries
• Insurances
• Utilities
• Phone / Internet / TV
• Transport
• Recreation and Entertainment
• Medical Expenses
• Clothing and Personal Expenses
• Education and Childcare
• Rent
• Child Maintenance

To ensure a smooth application process you need to ensure you take the time to calculate a realistic breakdown of your expenses as the bank are likely to pick up any anomalies when they scrutinize your statements. Whilst it’s hard to calculate every item down to the last dollar, the lender will want to see reasonable figures declared on your application as evidenced in the supporting documentation provided.

Even though it may seem a little painful to go through your expenditure with a fine-tooth comb, it is an effective tool for those who are not totally plugged in to their finances to see where their money is indeed going. Doing a self-audit on your expenditure may not only help tidy up your outgoings by identifying areas where funds are being mismanaged, but it will also help you determine if you really can afford the loan you are seeking.

If you are not sure on what you should include in your living expense breakdown talk to your Blackburne Mortgage Broker as it doesn’t have to be as hard as it may seem.