What do banks consider as Income when it comes to offering you a home loan?
We have talked about the banks looking at how you spend your money when they assess your loan application… and of course the banks look at your income also.
It is easy for wage and salary earners to show how much they earn! The banks will look at your last 3 payslips. They’ll look at the hours you work, any deductions and allowances, how much the KiwiSaver deduction is (eg 3%, 8%), and any overtime and bonuses. Different banks of course have different policies for how they assess overtime, allowances and bonuses.
None of this matters though if you are not on a permanent contract or if you have started a new job and have a 90 day probation period in your contract.
This is another time when working with a Mortgage Adviser is really beneficial, we can tell you which bank will look most favourably at any additional income you have.
Banks will also accept income from:
- Working for Families payments
- rental income
- child support
- other misc sources such dividends from investments, or regular trading income from your soy candle side hustle.
Each of these different forms of income will be assessed and you will need to provide evidence of the income. For each type of income the bank will require a different set of evidence.
The banks may take into consideration a percentage of the full amount received, for example they take 80% of Boarder income and the max. limit for a boarder is $200 per boarder. For you to have a boarder you just need to have a spare room for the boarder.
Rental income is becoming more difficult to assess due to the recent tax changes and each bank and lender has a different way to assess the income.
So, what about if you are not receiving a wage from an employer?
If you are self employed the banks require you to have 2 years of financial statements showing that you are trading profitably and pulling an income from your business… The lenders will also want to verify these statements with your income tax returns. If you have been operating your business for less than 2 years there are other lenders that we can use and they may take your last 6 months GST returns as sufficient evidence. Each bank will assess self employed income based on the industry and personal expenses you may be claiming through the business.
It can get rather complicated quickly and this is where your Financial Adviser can help you gather the information and present it in the best way to get a successful outcome.
Just because you own your own business doesn’t mean you don’t get to buy your first home.