Meeting Topic

Successful Mortgage Applications When Self-employed

Introduction

Have you ever felt that being self-employed can be a handbrake to accessing the money you need to buy that next home? Well, rest assured that it’s not impossible, just a bit different! In the article below, Clarie Williamson educates us on what we need to know before going to the bank with our hand out for that next mortgage.

Successful Mortgage Applications When Self-employed

Being self-employed is a great option for many people and can give freedom in a lot of areas of life. It can also mean a few more challenges, and a question which comes up often in business circles is how to make the most of your income when applying to borrow money for a home purchase.

There are a few key things to think about and have ready to discuss with your bank or mortgage adviser.

How do banks establish what I earn?

When a person is self-employed, the bank will use your “tax paid income” which is the money left over once your expenses are paid and is the income which is returned to the IRD.

This is quite different from turnover, or your “gross profit” as it accounts for the expenses you incur as a direct result of doing business. For many small business owners, the line between personal and business expenses can be blurred, but as a rule of thumb, if you have claimed the expense as a business expense, it will be deducted as such to obtain your” tax paid income”.

Generally, the higher your tax paid income, the higher the lending amount the bank may be able to offer you.

What do I need to provide the bank?

Most banks will require business financials (prepared by your accountant), for at least the past 12 months and ideally the past 2 years.

If you’re halfway through a new financial year, expect to be asked for profit and loss statements (P&Ls) or similar, which are usually downloadable from your accounting software programme.

If you are an independent contractor and you don’t get financials prepared, your IRD Tax Summaries will confirm what income you are paying tax on. These can be downloaded from the IRD website and supplied as evidence of income.

 What if I’m newly self-employed?

Often this depends a lot on your career trajectory until this point in time. Banks will carefully consider the risk that your income could be affected or reduced, and will look for patterns to ensure you’ll have sufficient income to meet your financial commitments.

If you have been in a similar industry prior to moving into a contractor role (this is common for trades or professional services), often the bank will be happier with shorter term tenure as a contractor if one client company can commit to a certain number of weekly hours via a written contract.

With newer businesses, non-bank lenders can be more helpful, especially if you have a large deposit or significant property equity. These vary significantly in their offerings but generally require more security (cash, property or collateral of some kind) and charge a higher interest rate and fee for service.

Be sure to check terms & conditions carefully; and make a clear plan for when you’ll be able to satisfy requirements of a standard bank, where you’ll be eligible for better rates and longer-term certainty.

While it may be a little more involved to borrow money when you’re self-employed, it’s most definitely not impossible, just a little different.

Involving experts like your accountant, mortgage adviser and/or banker and being armed with the right information will ensure success and your new property will be just around the corner!

To find out more about Claire and how she helps her clients, check out her website:  https://www.mymortgage.co.nz/

Next Meeting Topic

Introduction

By Jennifer Myers

Why is it that women are historically ‘behind the 8 ball’ when it comes to building wealth and financial independence? And what small steps can we take to begin to get ahead? Read the article below and identify one small thing you will commit to doing to look after your financial independence.

The Importance of Financial Independence By Liz Brown Douglas & Emma Monaghan

Are you wanting to feel empowered and in control of your own future?  We are sure that is a pretty easy question to answer which is why today we are seeing more women taking control of their financial futures. Gone are the days when women relied solely on their partners or family members to manage their investments and run the family cheque account.

Historically, women have faced numerous challenges when it comes to financial independence. The gender pay gap, societal expectations, and access to financial education have all been contributing factors. The result of these is that women were less likely to invest and build their future wealth.

It is pleasing to see that times are changing. The gender pay gap is a public policy issue and corporates are increasingly reporting against the same, societal norms are being challenged and financial literacy opportunities are more plentiful thanks to media and technology.

This is important for several reasons. Firstly, the gender pay gap has been real and data shows that in some industries, women continue to earn less. Wage disparity means women may have less money to invest and build their wealth. Taking control and investing the hard-earned money they do have is key.

Secondly, life expectancy differs between the sexes. On average, women tend to live longer than men, which means they need to plan for a longer retirement period. This includes not only saving for retirement but also investing in assets that can generate income and provide financial security during retirement.

Thirdly, women may face life circumstances that require financial flexibility. That might include career breaks to raise children or support aging parents. The resultant impact on careers and therefore earnings potential and savings can be real.

Finally, beyond practical points like the above, there is the very real psychological benefit we see in women who take control through actively managing their finances. We generally observe increased confidence and financial literacy and with that, a sense of control and independence that can flow through into other aspects of their wellbeing.

From our perspective while progress is evident, there is still more work to do and we encourage all women regardless of age and stage to invest time and energy into educating themselves about financial matters. Sorted.org.nz is a great independent resource and has numerous tools where you can work through information relevant to you.

Other approaches can be as simple as understanding choice around interest rates in relation to your mortgage or how to restructure the loan and repayments. It might also mean being in active discussions with your KiwiSaver provider, understanding the risk level you are accepting inside the fund you are in and to the extent it is important to you, how socially responsible investment is taken into account.

Don’t be afraid to have a conversation with your girlfriends and family members about financial matters. Normalise it and ask questions when you don’t understand what you have received in the mail or watch on the evening news.

Engage with a professional adviser. Our days are often full of conversation with people who just want reassurance around news and current events and what that means to their situation. For us this is a favourite part of the job. Being able to share information and help others succeed with their goals is how we all move forward to financial independence and control our futures.

Liz Brown Douglas whose views and opinions are expressed in this article, is an Associate Investment Adviser with Forsyth Barr in Auckland and Emma Monaghan is an Investment Adviser with Forsyth Barr in Auckland East. To arrange a meeting to discuss your investment objectives in confidence, contact Liz Brown Douglas or  Emma Monaghan directly. For further information on our people and services, please visit our website www.forsythbarr.co.nz

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