Self-employment is an adventure and a popular pursuit for numerous Kiwis. It’s not surprising that in this country of DIY-fans, many people decide to strike out and build something of their own.
But of course self-employment also has its challenges, and getting a home loan can be one of them. For many of our business-DIYers, even getting an understanding of the options can be an overly – and unnecessarily – complex experience.
If you’re self-employed and are looking for some straight-forward information, this read is for you. Below you’ll find some of the more common self-employed scenarios and the home loans options.
Some common self-employed scenarios and home loans options
Trading for a short-time:
Getting a home loan is largely about your ability to prove that you can pay it off. Of course, when you are just starting out, you won’t have two years’ worth of tax returns available to demonstrate reliable income. This most likely means that the banks won’t be an option for you. However, lenders like RESIMAC appreciate that in a short period of time - even 6 months - a new business can achieve a reliable and consistent level of income. If this scenario relates to you, we suggest having a look at the options provided by non-banks.
Trading for two years – financials up to date:
Good news – if you have filed your tax returns for the past two years, it’s likely that you’re in a good position to secure competitive home loan interest rates from a range of lenders. The amount that you can borrow will depend on the income that you have filed in your tax returns, but otherwise, you should find that getting a home loan is similar to the experience of PAYE employees.
Trading for a few years – financials not up to date:
Generally speaking, main banks will ask for your current tax return, which can be problematic for self-employed people depending on the timing. That’s why home loans designed specifically for the self-employed, like those offered by RESIMAC, allow you to demonstrate your income using other documentation such as GST returns and bank statements.
Business profitability rebound:
Has your business recently hit the fast track? Is a restructure delivering profit and performance growth? If so, that’s great news. The not so great news is that it will take a bit of time for your tax return to catch up to your good work. If you’re frustrated by the ‘paperwork’ lag, don’t be; there are options. Talk to RESIMAC – we look beyond the tax return and can accept other forms of income validation so you don’t have to wait for the tax year to catch-up.
Income through contracting:
It can be tempting – with good reason – to move from PAYE to contracting; you can earn more and of course, there’s the promise of more flexibility and other ‘work-life-balance’ benefits. However, many Kiwis don’t fully appreciate what the move to contracting can mean for their home loan options. In short, the main banks will want to see two years’ tax returns to validate your income. This can come as a bit of a shock for many, but don’t put your life and plans on hold; lenders like RESIMAC offer home loans designed specifically with this kind of scenario is mind.