When you're ready for buying a home as an Australian Defence Force member, understanding serviceability assessment becomes crucial to your success. This process determines how much lenders will approve for your loan amount, and knowing what's involved puts you in a stronger position when applying for a home loan.
What is serviceability assessment?
Serviceability assessment is how Home Finance & Mortgage Brokers and lenders evaluate your ability to repay a home loan. They examine your financial situation, including income, expenses, and existing debts, to calculate your borrowing capacity. For ADF members, this assessment often considers unique factors like allowances, deployment income, and military-specific benefits.
Lenders use this information to determine:
• Your maximum loan amount
• Whether you qualify for interest rate discounts
• Your loan to value ratio (LVR)
• If you'll need lenders mortgage insurance (LMI)
Income considerations for Defence personnel
Your military income structure differs from civilian employment, which affects the application process. Lenders typically consider:
Base salary and allowances
Your regular pay forms the foundation of serviceability calculations. Most lenders accept various Defence allowances as genuine income, including:
• Living allowances
• Separation allowances
• Field allowances
• Overseas deployment income
Deployment and operational income
Many lenders recognise deployment income, though some apply different weightings. Having consistent deployment history shown in your banks statements strengthens your position.
Rental income from previous postings
If you own property from a previous posting, rental income can boost your borrowing capacity when supported by lease agreements.
Expenses that impact your assessment
Lenders scrutinise your regular expenses during the Home Loan application process. They'll examine:
- Living expenses: Based on your family size and location
- Existing debt repayments: Credit cards, personal loans, car loans
- Dependants: Children and other financial responsibilities
- Accommodation costs: If you're currently renting or paying mess fees
Defence personnel often have lower living expenses due to subsidised accommodation and meals, which can improve serviceability outcomes.
Calculating your borrowing capacity
Most lenders use a debt-to-income ratio when calculating home loan repayments you can afford. They typically allow total debt repayments of 6-8 times your annual income, though this varies between lenders.
The calculation considers:
• Your net income after tax
• Minimum living expenses
• Existing debt obligations
• A buffer for interest rate rises
• Property-related costs like rates and insurance
How posting cycles affect serviceability
Frequent relocations can impact your financial situation differently than civilian borrowers. Consider these factors:
Property market timing
Posting cycles might not align with ideal property market conditions. Having pre-approved financing provides flexibility when opportunities arise.
Multiple property ownership
Many ADF members own properties in different locations. This affects your serviceability calculation, as rental income and mortgage repayments from existing properties influence your borrowing capacity for new purchases.
Interest rate considerations
Understanding how interest rate affects your serviceability helps with planning:
Variable interest rate impact
Lenders assess your ability to handle variable home loan rates, typically adding a buffer of 2-3% above current rates when calculating repayments.
Fixed interest rate benefits
A fixed interest rate home loan provides certainty for budgeting, particularly valuable during posting transitions. However, lenders still assess serviceability using variable rate calculations.
Improving your serviceability position
Several strategies can strengthen your Home Loan application:
Reduce existing debts
Paying down credit cards and personal loans improves your debt-to-income ratio immediately.
Build genuine savings
Consistent saving patterns in your banks statements demonstrate financial discipline to lenders.
Consider an offset account
An offset account can reduce interest costs and demonstrate your ability to maintain higher balances, supporting future serviceability assessments.
Maintain clean credit history
Ensure all current commitments are paid on time, as late payments can significantly impact lender confidence.
The pre-approval advantage
Getting Home Loan pre-approval before house hunting provides several benefits:
• Confirms your actual borrowing capacity
• Speeds up the final application process
• Strengthens your negotiating position with sellers
• Provides certainty during posting transitions
Pre-approval typically lasts 3-6 months, giving you time to find the right property while knowing your financial limits.
Working with specialist Defence brokers
Home Finance & Mortgage Brokers who understand Defence circumstances can access Home Loan options from banks and lenders across Australia. They know which lenders:
• Accept Defence allowances at full value
• Offer preferential terms for ADF members
• Understand posting cycles and deployment income
• Provide streamlined application process for military personnel
Specialist brokers can also help you understand stamp duty concessions available to Defence members in various states.
Understanding serviceability assessment empowers you to make informed decisions about your home loan journey. Whether you're looking to get pre-approved or ready to apply for a home loan, knowing how lenders view your financial situation helps you present the strongest possible application.
Your unique circumstances as a Defence member can actually work in your favour when working with knowledgeable professionals who understand military life and can access suitable Home Loan Rates across the market.
Call one of our team or book an appointment at a time that works for you to discuss your specific serviceability situation and explore your home loan options.
