Research shows 11.2% of Australia’s population is now self-employed and enjoying the many perks of working for themselves. However, when it comes to applying for a home loan, it seems being your own boss sends up a red flag to banks and other lenders. Why? A salaried employee has a regular, steady income and is less likely to experience the cash flow volatility of a small business owner, contractor, entrepreneur, tradesperson or freelancer. When you are self-employed getting a loan can be difficult.
By being proactive and accessing specialist advice, self-employed applicants can enjoy a hassle-free road to securing a home loan. Check out our six steps for securing a home loan when you are self-employed.
6 Steps To Securing A Home Loan When You Are Self-employed
1. Check your credit history
Checking your credit history is a good step for anyone applying for a home loan. If you’re self-employed, it’s definitely worth taking the time to make sure your credit history doesn’t include any defaults or errors. These can hold up your loan application if they are not rectified in advance.
2. Crunch your numbers
Taking the time to work out exactly how much you’d like to borrow is also a good idea. That way, you can hit the ground running when you meet with lenders or your mortgage broker.
3. Get all your ‘docs’ in a row
Many lenders will lend to self-employed borrowers who provide their full business financials. This generally includes your personal and business tax returns for the past two years. If you have these documents on hand, and they reveal a fairly consistent income, applying for a loan should be relatively straightforward.
However, the hectic schedule that comes with running your own business means many self-employed borrowers’ tax returns are not up to date. If you have time on your side, consider working with your accountant to lodge your outstanding returns. If you’re in a hurry, you may wish to explore the option of applying for a low doc loan. See the next point for more details.
4. Consider a low doc loan
Low doc loans are offered by a wide range of lenders. As the name suggests, require less documentation than traditional loans. Many low doc loans only require 12 months of business activity statements instead of full financials. However, a downside of some low doc loans is that they may only be available at a lower loan to property value ratio (LVR). This means you may need a larger deposit.
5. Think outside the square
It may be possible to apply for a home loan using a Certificate of Income Declaration. This is a document that verifies your income and is signed by your accountant. It’s wise to consult a mortgage broker before applying for a loan in this way, as they can advise which lenders will accept an income declaration. It should be noted, however, that applying for a loan using such a document may mean that you need a larger deposit, as the required LVR may be lower.
6. Seek expert advice
Trying to navigate the home loan landscape solo can be difficult and may not produce the outcome you desire. There are many experts who can help self-employed people access a home loan, and a mortgage broker is a good first port of call. They will be able to provide you with an up-to-date overview of which lenders on their panel are most comfortable lending to the self-employed and explain the types of loan products available. They can also provide valuable advice around the documentation you will need before you submit your application, making the process a lot smoother and stress free!
While it’s a little more complicated for self-employed borrowers, getting a home loan can be easier than you’d imagined with a mortgage broker in your corner.
Want more information? Click here to get in contact with expert broker Marco Scannone today.