What the Lender Counts as Income: A Worked Obligation Ratio

An illustrative walk through how allowances, bonuses, credit card limits and school fees are treated when a lender works out how much of your income is already committed.

A lender does not compare your instalment to your salary. It compares the total of your commitments, including the proposed instalment, to the portion of your income it considers reliable, and both of those figures are usually smaller than borrowers expect. The illustration below shows the arithmetic with round figures. The weightings a lender applies and any ratio limit are set by that lender under the framework SAMA supervises, and must be confirmed at the time you apply.

The situation

A salaried applicant earning a total monthly package of SAR 32,000 wants to understand why a lender assessed his capacity far below what he expected. His package is made up of basic salary, a housing allowance, a transport allowance and an annual bonus. He also holds a car finance, two credit cards he rarely uses, and pays school fees annually. This illustration applies plausible but invented weightings purely to show how the calculation is assembled.

Assumptions (illustrative)

• Basic salary: SAR 20,000 a month.
• Housing allowance: SAR 6,000 a month, paid monthly with the salary.
• Transport allowance: SAR 2,000 a month.
• Annual bonus: SAR 48,000, paid once a year and variable in amount.
• Existing car finance instalment: SAR 2,400 a month, with 30 months remaining.
• Two credit cards with combined limits of SAR 90,000, current balances close to zero.

Step 1: Separate the package into components

Monthly cash received is SAR 20,000 plus SAR 6,000 plus SAR 2,000, which is SAR 28,000. The bonus of SAR 48,000 averages SAR 4,000 a month, giving a headline package of SAR 32,000.

The applicant thinks in terms of SAR 32,000. The lender starts by splitting that figure into parts it treats differently, which is where the gap between expectation and assessment begins.

Step 2: Apply the lender’s weightings to income

In this illustration basic salary counts in full at SAR 20,000, the housing allowance counts at half at SAR 3,000, the transport allowance is excluded, and the bonus counts at a quarter of its monthly average at SAR 1,000. Assessed income is SAR 24,000.

A quarter of the headline package has disappeared before a single obligation is counted. Allowances that can be withdrawn and income that varies are discounted because the lender is underwriting a twenty-year commitment.

Step 3: Total the existing obligations

The car finance contributes SAR 2,400. The credit cards contribute an assumed notional charge of 5% of the SAR 90,000 of limits, which is SAR 4,500, even though the balances are near zero. Existing obligations total SAR 6,900.

Unused credit is treated as available to be used. This is the single most common surprise in an assessment, and it is also the easiest one to fix before applying.

Step 4: Calculate the room left for a new instalment

Applying an assumed ratio cap of 55% to assessed income gives SAR 13,200 of permitted total obligations. Subtracting the existing SAR 6,900 leaves SAR 6,300 for the new instalment.

The applicant expected to be assessed on SAR 32,000 and to carry an instalment of perhaps SAR 12,000. The arithmetic leaves roughly half that, and none of the inputs is unusual.

Step 5: Test the effect of closing the cards

Reducing the combined card limits from SAR 90,000 to SAR 20,000 cuts the notional charge from SAR 4,500 to SAR 1,000. Existing obligations fall to SAR 3,400 and the room for a new instalment rises to SAR 9,800.

Closing credit the applicant was not using added SAR 3,500 a month of assessed capacity without changing his income or his spending at all.

Step 6: Test the effect of the car finance ending

If the car finance is settled, existing obligations fall to SAR 1,000 and the available instalment rises to SAR 12,200, which is close to the figure the applicant originally assumed.

The sequence of decisions matters more than the size of the income. Clearing or shrinking obligations before applying moves the outcome more reliably than negotiating with the lender afterwards.

What changes the answer

• Which allowances your employer pays and whether the letter describes them as fixed or discretionary.
• Whether your bonus has a documented history, since a single year rarely carries weight.
• The notional charge each lender applies to undrawn credit card limits, which is a policy choice.
• Any ratio cap and whether a different cap applies to different income bands or categories of borrower.
• Obligations you believe are closed but which remain open on the credit bureau record.

What the numbers tell you

• Assessed income is a derived figure, not your package, and the derivation is where capacity is lost.
• Undrawn credit card limits can cost you more capacity than an active instalment of the same size.
• Closing unused facilities months before applying is the cheapest way to improve an assessment.
• Variable income needs a documented history before a lender will weight it at all.
• Ask the lender which components it counts and at what weighting before you submit, not after.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira works alongside the finance side of a property purchase or a build: the valuation evidence, the cost plan and the construction programme that a lender needs to see. The lending terms come from your bank or finance company, and Domira makes sure the property side of the file stands up.