Do you know how serviceability assessments impact painters?

As a painter, you've probably heard the term "serviceability assessment" thrown around when discussing home loans. But what exactly does it mean for someone in your trade? Let's break down this crucial part of the Home Loan application process and how it affects your journey to buying a home.

What is a serviceability assessment?

A serviceability assessment is how lenders determine whether you can afford to repay a loan amount over the life of your mortgage. It's essentially their way of checking your borrowing capacity by looking at your income, expenses, and financial situation. For painters, this process can be more complex than it is for traditional employees with regular pay slips.

Lenders will examine several factors when calculating home loan repayments you can afford:

• Your regular income from painting jobs
• Business expenses and overheads
• Personal living expenses
• Existing debts and commitments
• The proposed loan to value ratio (LVR)
• Current interest rate environment

How your painting income affects the assessment

One of the biggest challenges painters face is proving consistent income. Unlike salary earners, your income might fluctuate between seasons or depending on project availability. Lenders typically want to see:

• Banks statements covering 3-6 months of business activity
• Tax returns for the past two financial years
• Profit and loss statements
• Evidence of ongoing contracts or regular clients

Many lenders will take an average of your income over this period to determine what you can borrow. Some may be more conservative and use your lowest earning year as the benchmark.

Interest rates and their impact on serviceability

When lenders assess your application, they don't just look at current home loan interest rates. They typically add a buffer of 2-3% above the actual interest rate to ensure you can still afford repayments if rates rise. This affects both variable home loan rates and fixed interest rate home loan assessments.

For example, if you're looking at a variable interest rate of 6%, the lender might assess your serviceability at 8.5-9%. This buffer can significantly impact the loan amount you're approved for.

Factors that can improve your serviceability

There are several strategies painters can use to strengthen their serviceability position:

1. Build a solid financial history: Consistent bank statements showing regular income deposits help demonstrate reliability

2. Consider an offset account: This can reduce your interest burden and show lenders you're financially savvy

3. Explore interest rate discounts: Some lenders offer better rates for certain professions or loan amounts

4. Get pre-approved: Home Loan pre-approval gives you a clear picture of your borrowing capacity before you start house hunting

5. Work with specialists: Mortgage brokers who understand the trades industry can access Home Loan options from banks and lenders across Australia that cater specifically to painters

Additional costs to consider

When calculating your serviceability, don't forget about additional costs associated with buying a home:

• Stamp duty (varies by state)
• Lenders mortgage insurance (LMI) if your deposit is less than 20%
• Legal and inspection fees
• Moving costs

The application process for painters

The streamlined application process for painters often involves working with lenders who understand your industry. Some banks and lenders have specific programs for tradies that recognise the unique nature of your income.

You might also want to consider whether a fixed interest rate or variable interest rate suits your situation. Fixed rates provide certainty for budgeting, while variable rates might offer more flexibility and potential savings if rates fall.

Using home equity to your advantage

If you already own property, your home equity can play a significant role in your serviceability assessment. This equity can help you avoid LMI or access better interest rate discounts when applying for a home loan.

Making your application stronger

To improve your chances in the property market, consider these steps:

• Maintain detailed financial records
• Pay down existing debts to improve your debt-to-income ratio
• Save a larger deposit to reduce your LVR
• Consider having a guarantor if your serviceability is borderline
• Explore different Home Loan Rates across multiple lenders

Remember, different lenders have varying appetites for self-employed borrowers like painters. What one lender declines, another might approve. This is where having access to multiple lenders becomes valuable.

Understanding serviceability assessments puts you in a stronger position when applying for a home loan. While the process might seem complex, knowing what lenders look for helps you prepare your application more effectively. Your painting business income doesn't have to be a barrier to homeownership – it just requires the right approach and preparation.

Call one of our team or book an appointment at a time that works for you to discuss your specific situation and explore your Home Loan options.