Part of applying for a home or investment loan is showing how much income you have, and many families with children receive Family Tax Benefit or FTB. They usually assume that all of their FTB will be included as income in their loan application, but this is often not the case. Whether it is included or not can make a big difference to your household income, and to the amount you can borrow to buy or refinance a home. So let’s take a look at how much is included and what difference it can make to how much you can borrow.
How Much FTB is Included in your Income by Lenders?
Most lenders will allow all Family Tax Benefit to be included as income provided that the children are under 11 years old at the time the loan application is submitted. This is because they want to know that the FTB will be payable for at least 5 years into the loan. This means that if your children are aged 12 and 14, for example, a lot of lenders will not include your FTB as income. This can greatly reduce your total household income and, as a result, greatly reduce the amount of money you have available to pay loan repayments. So it will reduce the amount of money you can borrow to buy a home.
While most lenders will only accept Family Tax Benefit for children up to 11 years of age, there are a few lenders who will include all of the FTB for children less than 16 years old, and one lender that puts no age limit on it (at the moment). So if you are receiving FTB your income, and hence the amount you can borrow, can vary widely depending on which lender you go to. Let’s take a look at an example so you can see how much impact this can have.
Case Study: Sam and her kids aged 12 and 16
Sam is a single parent applying for a loan using the income of her full time job and FTB for 2 children aged 12 and 16 years. To keep this simple let’s assume that she received the maximum rate of FTB Part A. So at the moment that would be $5,493 per annum for the 12 year old and $6,927 per annum for the 16 year old. We’ll also assume that she is eligible for the maximum rate of FTB Part B which, with her youngest child being 12 years old is $3,186 per annum (all figures taken from the Australian Department of Human Services website).
The FTB income that could be included for calculating her ability to pay off a loan would be:
$0 for those lenders that will only include FTB for children aged less than 11 years of age.
$8,679 for the lenders who would include FTB income for the 12 year old.
$15,606 for the lender who will include all FTB income regardless of age.
That $15,606 difference in income can mean a difference of over $200,000 in the amount that she can borrow to purchase a home!!
So it is worth shopping around to find the lenders who will include all of your FTB as income if you want the option to borrow as much money as you can. Before you fill in all the paperwork, ask them how much of your FTB they will include as income on your application.
Do you need all your FTB included in your income calculations?
If you know how much money you need to borrow, such as if you are refinancing your home loan to get a better loan, and you only need the FTB from your youngest child included as income, then it may give you a greater number of lenders that you could get a loan with. This is something we can calculate for you because we have software that that takes the FTB into account for all our 30 or so lenders.
Need money for renovations?
If you are refinancing your home loan and want to release some of the equity to do renovations, depending on how much you want to borrow you may need to maximise your household income to borrow the funds you need. In this case you want a lender who will include all of your Family Tax Benefit because then they will generally lend you more than lenders who don’t include all of that income.
So ask your lender how much of your FTB they will include, or if you would like us to do the calculations for you just fill in our Enquiry Form. We can calculate how much money you can borrow including all your FTB as income, and work out the best lenders to get you a loan with. Also, we can work out whether you need all your FTB included in your income to get the loan and if you don’t we can recommend the best lenders for you. Depending on the age of your children, this may give you more lenders that are suitable.
Just fill in our Enquiry Form and we can get to work on it for you! This is definitely worth shopping around for!
Do you have any questions about Family Tax Benefit as part of your income? Or maybe you have an experience with your income changing and having an effect on your loan? Feel free to share!