Taking some time off?

We’ve recently worked with clients who were starting a family and as a result, they were looking at purchasing their first home to set up a stable foundation for their kids, rather than renting. They initially thought their options would have been limited given the situation and going down to one income – however, after an initial discussion with us they were pleasantly surprised with the optimistic response.

It is quite a common scenario we encounter, where clients are wanting to look at setting up a foundation and buying a home as opposed to renting and are planning to have kids.

The most important consideration from a lenders’ perspective is how to make the mortgage work – particularly during the period when there is a reduced income.

The recent example we had was as follows:

• Mr was self-employed in the graphics & design industry and earning a stable income (proven by financial statements over recent years, and a year-to-date profit and loss statement.
• Mrs was salaried for a DHB. She was taking some time off and would be receiving some mat leave income for a period, and then would be returning to work in June 2022.
• They had around a 15% deposit all up – including a gift from family.

What are the key things lenders look for or look at?

• Deposit:
   
  • In this situation the lender is most concerned that not only do you have sufficient deposit funds for the purchase (minimum 10% for most owner-occupied purchases) but also in addition to this you have some further savings as a buffer for any shortfalls in income and expenditure based on their calculations.
     
• Income:
  • Banks want to understand the situation and how this would affect the current income position. In this scenario where Mrs was taking some time off for circa 9 months, there needs to be a clear explanation around the income and what will happen during and after this period.
  • In addition to this you need to provide evidence of your return date to work (usually a letter from the employer) and what your income will be upon returning.
     
• Expenses:
  • As you may already be aware, banks will look at your existing and proposed income & expenditure more harshly than you would.
    If, based on their calculations you have a deficit (let’s say for example $2,000 per month) then the bank needs to understand how you’d cover this during the 9-month period above. In this case it would be having access to $18k in cash as a buffer (as per what I’ve noted in the “deposit” section above).
  • Upon returning to work you will need to cover off any additional costs (childcare, if applicable). If not applicable, why? Family support, working from home, etc. OR if perhaps Mr will then be reducing work hours, etc.

If you know someone in a similar situation to this that we may be able to assist – please feel free to get in touch on info@krispedersen.co.nz