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Proving To Lenders Your Income Can Support The Property Purchase
In places around the world, lenders might take a lot of factors into consideration when working out your personal income. These can include:
- Child support
- Social security
- Unemployment insurance
- Disability insurance
Your personal income is the most important factor that a lender use to determine whether you can afford to buy your dream home. So it goes without saying that your personal income should be as high as it possibly can for a bank to approve a jumbo loan.
The 4 biggest items that play a part in determining your income is salary, bonuses, rentals and assets. The important word to keep in mind is “stability”. If you are able to prove that these sources of income are stable and recurring, they can be added onto your income.
The most acceptable form of prove of your salary is a computerised payslip. If you are employed by a big MNC, you shouldn’t have a problem getting a hold of this. Your payslip should clearly show your full name and the software that is used to manage the company payroll. Lenders might also accept allowances for housing and transport as part of your income. So make sure that your payslip indicates these allowances. In Singapore, you might argue that your CPF statement alone can show your income. Well note that CPF has a contribution ceiling. So if you make more than the ceiling, your CPF statements will not show a property indication of your salary.
The tricky part comes when you are self-employed. When you are a salaried employee in your own company, the same documentation as above mentioned will apply. But when you operate a sole proprietorship, you might not have a payslip as everything goes through your personal bank account. Common occupations that also run into this circumstances include, real estate agents, hawkers, taxi drivers, etc. In this case, you need to provide your income tax statement (Notice of Assessment) for at least the last 2 years to show stability of income. If you pay yourself with payment vouchers, make sure that you have your salary properly documented via direct deposits into your personal accounts for a minimum of the most recent 6 months. Your salary indicated in the payment voucher has to exactly match your deposits for it to be verifiable.
Back to the employed. Singapore has one of the highest job hopping rate in the world. What happens when you just switched over to a new job and obviously does not have even 1 month of payslip? Prepare your employment contract in this case. The contract must show your full name, job position, salary, and acceptance signatures from you and the employer’s representative.
As the minimum requirement from a lender is likely to be 3 months worth of payslips, going with the minimum is not going to help you. This is where we move on to bonuses.
With the stable growing economy all these years, it comes as no surprise if your monthly salary is listed as $5,000 but your total earnings for the year comes up to $100,000. The huge windfall comes from bonuses. As computerised payslips do not always show your accumulated earnings, the only way you can show your bonuses to your lender is via your income tax statement. Attach a copy of your latest tax filings (Notice of Assessment) to show your bonus.
We often hear about properties paying for themselves. And this concept can be applied to getting a mortgage as well. When you buy a property for investment, it might already have tenants inhabiting the place. If this is true, provide a copy of the tenancy agreement to proof this to the lender. This indirectly adds onto your personal income as the monthly repayment is partly financed by rental collections. If you go bigger, you could be buying a 4 unit building intending to live in one of the units. The tenancy agreements of the other 3 units can potentially be enough to finance the mortgage by itself. So don’t forget to include the tenancy agreements if the apartment you are buying is indeed tenanted with a property lease agreement.
Some well know entrepreneurs achieved legendary status by taking a $1 salary. So how in the world can they afford a to buy a home? The good thing is that banking has always evolved throughout time. There must be a way to lend to these people who are asset-rich with little salary. If you are one of those who fit this profile, assets that can be taken into consideration include, fixed deposits, unit trusts, stocks & shares, insurance, other properties, etc. However, these items are likely to be discounted.
Lenders want to lend you the money to buy your home. However, they are running a profit-driven business and you cannot fault them for being prudent with their credit assessment criteria. As long as you are able to provide proper documentation demonstrating that you can afford the property you are buying, they will have little issues on lending you the funds you need.
What if your documentation fails to convince the lender?
If all else fails, it is time to bring in the heavy artillery. You see, the concern of any bank is whether you will be able to faithfully repay your monthly obligations. So if quantitative factors from above mentioned documentation is not convincing, you can try the qualitative factors below. You do need to show documents to back up your claims.
1) The current rental you are paying is more than the projected mortgage payments you will be making. This is a no-brainer. You actually save money by buying a house and taking up a mortgage from the bank.
2) You are a corporate high flyer who get promoted more frequently than the average employee. You salary has also increased substantially with every promotion.
3) You have become a high net worth individual at a tender young age. What defines “high net worth” is subjective. But when you can show a personal net worth of around $300k, you will usually be categorized as one.
4) You have kept a considerable cash reserve in time deposits for some time. This demonstrates that you are a risk-adverse person who keep your cash stocked up like a wine collection for a rainy day.
5) You are not someone who goes into debt. You have little or no monthly commitment at all on credit facilities and make prompt payments to your credit card before the due dates. Monthly commitments include personal loans, car loans, study loans, etc.
6) Big down payment. Those that leverages to the absolute maximum will go for the full 80% loan to value in Singapore. So if you are taking a more conservative LTV of 70%, it shows that you are not one of those who need maximum leverage to afford their homes.