A lot of professionals earn very good incomes, but the way that income is structured can make a big difference when it comes to borrowing.
A base salary is usually fairly straightforward. Once you add bonus, commission, overtime, allowances, profit share or partner income, the assessment can become more detailed.
You might be earning $350,000 or $400,000 a year in total, but that does not automatically mean every lender will use the full amount.
Your Total Income Is Not Always Your Borrowing Income
What you earn over the course of a year and what a lender is prepared to use for servicing are not always the same thing.
A lender may need to break the income down into separate components, including base salary, bonus, commission, overtime, allowances, profit share and partner income.
The important part is how each component is treated.
Base salary is usually the easiest part. Variable or additional income is where lender policy starts to differ more.
Bonuses Are Not All Treated the Same Way
A professional may have a strong base salary and then receive a substantial bonus each year.
Even where that bonus has been relatively consistent, a lender may not simply take the latest figure and use 100% of it.
Depending on the lender, they may look at the income history, average previous years, use a lower year or apply a reduction to the amount used for servicing.
For someone whose bonus makes up a meaningful part of their overall income, that can have a real impact on borrowing capacity.
Commission Income Can Create the Same Issue
For someone in a sales role, commission may be a normal and substantial part of their annual income.
The lender may still want to see a track record before relying on it.
They can look at how long the commission has been earned, whether it has been consistent, whether it is trending up or down and whether the latest result looks sustainable.
Two lenders can look at exactly the same commission history and arrive at different usable income figures.
That difference can flow directly into borrowing capacity.
Overtime Can Be More Important Than People Expect
For some professions, overtime is a regular part of income rather than an occasional extra.
That can be particularly relevant for medical professionals, emergency services workers, trades and other employees whose hours can vary.
The challenge is that lenders may treat overtime differently depending on how long it has been earned, how consistent it is and whether they consider it likely to continue.
One lender may be comfortable using a large portion of regular overtime. Another may take a more conservative approach.
For someone earning a meaningful amount of overtime each year, that difference can materially affect the result.
Allowances Need to Be Looked at Properly
Allowances can also be treated differently depending on what they are for and how the lender views them.
Some allowances may represent genuine additional income. Others may be intended to cover a specific work-related expense.
That distinction can matter.
Rather than assuming every allowance shown on a payslip can be added to income, it is worth understanding exactly what the allowance relates to and how the lender will treat it.
This is another area where two lenders can look at the same payslip and arrive at different usable income figures.
“Partner” Does Not Tell Us Enough
This becomes more complicated again with lawyers, accountants, consultants and other professionals working in partnership structures.
A salaried partner and an equity partner can be very different from a lending perspective.
A salaried partner may receive a fixed salary plus bonus or profit share. An equity partner may have an ownership interest in the business and may be assessed more like a self-employed borrower.
That can change the documents required, the way income is calculated and ultimately how much income the lender is prepared to use.
This is why I would much rather understand the actual remuneration and ownership structure than make assumptions based on someone’s job title.
A $400,000 Income Can Look Very Different Between Lenders
Take a professional earning:
- $250,000 base salary
- $100,000 annual bonus
- $50,000 profit share
On paper, total income is $400,000.
One lender may be comfortable using most of the variable income. Another may shade the bonus and profit share. Another may want a longer history before relying on it.
The client has not changed, but the borrowing result can.
That is why I do not like relying on a rough borrowing figure for someone with more complicated income.
Recent Promotions and Pay Rises Can Matter Too
A recent promotion or pay rise can improve the position, but fixed and variable components may still be treated differently.
A lender may be comfortable using a new base salary with the right supporting documents while continuing to rely on historical figures for bonus, commission or overtime income.
That is why the question is not simply what someone earns today.
It is also what type of income they receive, how long they have been receiving it and how the lender is likely to treat it.
Why This Matters Before You Buy
For professionals on strong incomes, this can be the difference between planning around one purchase range and finding out later that a lender sees the position differently.
Before the property search gets too serious, I prefer to understand the full income picture, including base salary, bonus, commission, overtime, allowances, profit share, partnership structure and any recent changes to remuneration.
From there, we can compare how suitable lenders are likely to assess the income and get a much more realistic picture of borrowing capacity.
It Is Not About Finding the Lender That Uses the Most Income
The aim is not simply to find whichever lender produces the highest borrowing capacity.
Rate, structure, flexibility, policy and future plans still matter.
A lender that uses more bonus, overtime or profit-share income is not automatically the right lender, but it can be an important part of the comparison.
The key is understanding the differences properly rather than assuming every bank will look at the income in the same way.
Planning Your Next Property?
If a meaningful part of your income comes from bonus, commission, overtime, allowances, profit share or partnership income, it is worth understanding how lenders are likely to assess it before you start making offers.
If you want me to work through how your income is structured and what that may mean for borrowing capacity, get in touch.
