Sam and Michelle are a hard-working couple in their late 20s. They returned from overseas three years ago. Their plan is to get a house ASAP, keep working for a couple of years, and then hopefully start a family.

Sam and Michelle's combined gross income is $110,000pretty typical for an Aussie couple. Take out tax and super, and they take home $78,856 a year.

Neither Sam nor Michelle have any credit card debt, nor any other personal debt.

They pay $475 a week for their flat ($24,700 a year) which leaves $54,176. They both have a car (the average cost of owning a car in Australia is $8,000 annually). Now add $5,000 for utilities (power, phones, internet, water, gas), $12,000 for food (and eating out), and $4,000 for clothing.

That leaves just over $17,000. Now this is a conservative budgetpretty much just the basic food/clothing/shelter scenario. Medical bills, insurance, pet costs, holidays etc. have not yet been taken into account.

Sam and Michelle currently have savings of $60,000 and are saving a regular $800 per month.

They are wanting to buy a house in a suburb near their families. The average house price in this suburb is $600,000.

Questions

1.Assess whether a home loan application by Sam and Michelle, based on typical current lenderrequirements, is likely to be successful. Provide detailed explanations in support of youranswer.

2.How will you communicate the results of your assessment with your clients?

3.Advise your clients on how to proceed following the lender's likely decision of a non-offer.