Tuesday, 25 July 2017

Accounting Considerations When Buying Your First Home

Saving up to buy your first home can be quite a challenge. Many of the principles relating to business finances can apply equally to personal finances when you’re budgeting and figuring what needs to be spent and how to minimise expenses.  

How Much to Save

There’s more to saving for a house than putting together the deposit. The deposit will take up the bulk of savings, but additional expenses include things such as:

·         Lender’s Valuation - your mortgage lender will want to know that the property they’re lending against is actually worth the sum you’re asking to borrow. The cost of the valuation could fall on your shoulders, so try to get estimations for this from your lender.
·         Survey Fees — there are various types of survey you can have done to learn about the condition of the property. How much you’ll pay depends on the type of survey, with the most expensive being the full structural survey. In older properties this is worthwhile as there may be hidden, potentially devastating faults.
·         Local Authority Searches — will identify planning issues that might affect your purchase, such as building or highway developments.

Other costs will include stamp duty, solicitor’s fees, mortgage arrangement charges, and then there are moving costs plus insurances.

Creating an accounting spreadsheet, on which you note estimates for costs and charges along with actual sums needed for the deposit, then balancing this against income and daily/monthly expenses, with help keep track and monitor your saving progress.

Mortgages for Self Employed People

Getting a mortgage when you’re self-employed is a little trickier than for those with straightforward employment but not at all impossible.

·         You’ll likely need three years of self-employed accounts, showing the business is profitable and viable.
·         You’ll have the same borrowing rights regarding amount lent vs. income earned as anyone else.
·         You’ll need finalised accounts that have been prepared by an accountant.

Startups or very young business will find it hardest to secure finance. Before the recession, self-employed borrowers could often find self-certified mortgages where no proof of figures was required, but those days are long gone. If you’re self-employed, the advice of an accountant will prove invaluable for preparing your books in readiness for a mortgage application. In addition to business bank accounts, the lender may also require personal bank statements.

The need for accounting records that have been properly prepared by an accountant should be a major consideration for anyone planning to go self-employed before making a house purchase.

Reducing Your Spending

Mortgage lenders will want to look at how you manage your money on a monthly basis. This will include such basic items such as how much you spend on food or how high your telephone bills are, what you pay on maintenance, or what your school bills are if you have children.

Treating such spending as you would when keeping business records will help you keep track and show up areas where economies could be made. It’s a good idea to reduce your outgoings during the year before applying for a mortgage, especially if regular expenses show things like direct debits to casinos. Lenders will also look for evidence that you rely on regular financial help from parents or friends, so make sure any additional income is properly categorised to avoid ambiguity or misunderstanding.

The decision to buy your first home brings many accounting considerations with it, as you’ll be looking at a new set of outgoings with new types of regulations and responsibilities. Putting together a personal accounting system to help you stay on top of (and understand) your income and expenses will go a long way towards demonstrating your sense of responsibility to a mortgage lender.