Working for yourself has many perks and rewards, however, when it comes to applying for a home loan, being your own boss often 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.
Being proactive and accessing specialist advice, self-employed applicants can also enjoy a successful and hassle-free road to securing a home loan.
1. Seek expert advice
Trying to navigate the home loan landscape solo 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. We are 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 also explain what sorts of loan products are available. We can also provide valuable advice around the sort of documentation you will need to have ready before you submit your application.
2. Get your affairs in order
A number of banks will lend to self-employed borrowers who provide their full business financials. This often includes your personal and business tax returns for the past two years. If you have these documents on hand – and they reveal a consistent income – applying for a loan should be relatively straightforward.
However, the schedule that comes with running your own business means many self-employed borrowers’ tax returns are not up to date. Consider working with your accountant to lodge your outstanding returns. If time is not on your side, you might look to explore the option of applying for a low doc loan.
3. Consider a low doc loan
Low doc loans are offered by a wide range of lenders and, require less documentation than traditional loans. Many low doc loans only require 12 months of business activity statements instead of full financials, for example. A downside of some low doc loans is that they may only be available at a lower loan to property value ratio (LVR), which means you may need a larger deposit.
4. Do your homework
Before applying for a home loan, check your credit history. If you’re self-employed, it is 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.
Take the time to work out how much you would like. That way, you can hit the ground running when you meet with lenders or your mortgage broker.
5. Think outside the square
If you are self-employed you may be able to apply for a home loan using a Certificate of Income Declaration – 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 we can advise which lenders will accept an income declaration.
However, applying for a loan using this method may mean that the required LVR (the portion of the property value you can borrow) may be lower, so you may need a larger deposit.
While it’s a little more complicated for self-employed borrowers, getting a home loan can be easier than you’d imagined.
Contact our local debt advisory team or Moore Stephens representative to have a further discussion on securing a home or investment loan that suits you.
Sam La
Associate Director – Debt Advisory
+61 3 9608 0179
sla@moorestephens.com.au