Here you’re actually getting a little sneak peak into one of the chapters in our workbook (stay tuned, it’s coming soon!). This chapter in the workbook is all about how banks look at various income sources (think bonuses, board, self-employed…), how banks assess income for mortgage eligibility and strategies for maximising your income. So, let’s get into it, shall we?

How banks look at various income sources

  • Employment income: Typically the bank will require a three-month employment history. However, there can be ways we can work around this if you have a permanent contract.

  • Self-employment income: For self-employed people things are a little bit different. Here you will need to have been in business for one financial year before the banks will use the income. Banks always use your net profit (profit after expenses).

  • Bonuses/overtime: While most of us love bonuses, banks view them a bit differently. Usually, bonuses are shaded by the bank. However, it can depend on which bank you go to. The same goes for overtime. Tip: If you can get your bonus as a part of your income that is much better as it then won’t get shaded.

  • Board income: Most banks will let you use between $200-250 per week. This can actually get you up to another $80,000 in borrowing.

How banks assess income for mortgage eligibility

We are going to begin by looking at something as exciting as the UMI and its significance in mortgage approvals. We know, we can hardly contain our excitement either!

UMI stands for Uncommitted Monthly Income, and it is basically how the banks assess whether or not you can borrow money. Here, the banks look at your “leftover” income after expenses and debt commitments on a monthly basis. So as you can see, UMI is actually very important. The banks basically want to know that you will be able to repay your mortgage and still pay off your car loan, put gas in your car and feed your children. A positive UMI demonstrates that the borrower has the capacity to pay the new financial commitment of a mortgage without jeopardising their overall financial well-being.

Strategies to Maximise Income for Mortgage Approval

Wouldn’t it be lovely if you just had millions rolling into your bank account every month? While these strategies and tips and tricks may not make you an overnight millionaire, they can help bump up your income to help you get over the line to get a mortgage.

  1. Negotiate your salary: When was your last pay rise? Perhaps it is time to go knock on the boss’ door and negotiate your salary.

  2. Get creative: Explore income sources that can supplement your current income. It could be part-time work, freelance opportunities or similar. Here, you will often have to think a bit outside the square – and remember, you don’t need to work part-time at the coffee shop forever!

  3. Get bonuses as a part of your salary: As mentioned earlier, banks shade bonuses. Therefore, it is much better to get your bonuses as a part of your salary. So, if possible, have a chat with your boss and see what you can work out.

  4. Extra work and overtime: We know that you probably don’t want to do 50-hour work weeks indefinitely, but taking on extra hours and working overtime temporarily to increase your income, may just be what gets you over the line and into your own home.

Okay, and now we have some fun (okay, maybe not your variation of fun, but you get it) for you to do:

  1. Use the below online calculator from BNZ to calculate how much you can borrow if you make no changes to your current situation:

https://www.bnz.co.nz/personal-banking/home-loans/calculators/how-much-can-i-borrow

 

  1. Now, play around with different numbers and scenarios. What happens if you get a part-time job that pays $40,000 per year? What if you get your bonus as a part of your salary? What if you get a $10,000 pay rise? Write down the different scenarios and how much you can borrow so you have it in writing.

https://www.bnz.co.nz/personal-banking/home-loans/calculators/how-much-can-i-borrow