No matter whether you are a sole trader, in partnership, a director, or a contractor, being your own boss is exciting and comes with a lot of satisfaction. But when it comes time to get a mortgage, it also can be a little trickier.
Being your own boss doesn’t come with quite the same certainty that salary and wages does. Your income can fluctuate depending on business turnover, and therefore it can be harder to prove a consistent income. Lenders need to see consistency and need to feel confident that what they are lending you will be repaid and at the right time. Proving your income is consistent is the biggest part of a successful loan application.
Naturally this is easy to prove on salary and wages, you show a copy of your paycheck or can prove regular remuneration from your employer, thanks to your bank statements. When you are self employed, the proof of income comes from things like annual financial statements and returns. Generally banks like to see two full years of financial statements with solid and consistent income. If you have been in business less than two years, then these documents are not possible, so you might need to look for an alternative lender. Alternatively if you have been in business for sometime, but have had inconsistent income or challenges in business (thanks Covid), then this can also be harder to prove.
The good news is there are plenty of lenders in New Zealand, and at Better Choice Home Loans, we have access to a good chunk of them. When you are self-employed, it’s a good idea to consider non-bank lenders which don’t fall under the same strict criteria as banks, so are more flexible in their offerings. In the past, these types of lenders often had higher interest rates and costs, however now many of them are competitive with bank lenders.
The amount of deposit you can provide is also another crucial thing that lenders take into account. If you are self employed and only have a 10% deposit you will find it considerably harder than someone with say a 40% deposit who has the same income. Obviously the more you can access to put towards your deposit the better your application looks, so we can look at things like using KiwiSaver and the Home Start Grants.
As always, it’s a good idea to come and have a chat with us as soon as you are thinking about buying. We can have a look over your self-employed income and offer you advice on what you will need to provide to a lender and the timeframes around this. We also work with you to gain approval from the lenders that we think will suit your specific needs. Give us a call today and let’s have a chat!