Own a Business? Self Employed? What You MUST Know About Applying For a Home Loan
Your Guide To Obtaining a Home Loan If You’re Self Employed
One in five Australians is self-employed. This means that there are quite some people here that are their own bosses and, in short, command over their very own businesses.
Of course, being your own boss sounds great and all, but there are a couple of things that may be uncertain for most self-employed people. For example, what do you have to go through in order to obtain a home loan?
Even though running your own business shouldn’t change your plans in terms of buying a house, it is worth noting that most lenders usually regard self-employment as having a higher risk.
Therefore, while you are not robbed of the possibility to get a home loan, you may have to take a different path than the employed Australian.
Things That You Need to Know
It doesn’t matter if you are self-employed or simply employed. When it comes to applying for a home loan, the most important thing is to be ready for it – irrespective of who applies for financing, all loans are assessed normally.
Just as with any loan, you will have to understand and adhere to the restrictions that come with a home loan, even if you are self-employed. You have, for example, to prove that you have a reliable income that you can rely on to manage your loan repayments.
Speaking of proof of income, this is where self-employed people may have to face different requirements. For one, you won’t be having a payslip to present to your lender.
When you are self-employed, lenders will most likely ask you for the last two years of business and personal tax returns, as well as for the income tax assessments. Naturally, lenders will use your declared taxable income when determining your borrowing capacity – not your gross turnover.
Therefore, you have to keep a good track of your financial records. As a matter of fact, you should do so as soon as you start being self-employed. Alternatively, having a good accountant will assist with bookkeeping.
Also, keep in mind that, if your financial records show large variances in income, you will have to explain these to your lenders. It goes without saying that you may be required consistent earning over the last two years if you want to get a home loan easier.
Low Doc Loans
Since you are self-employed, then you may have heard of something called low doc loans. With this type of loan, lenders will look at different financial measures when assessing your application.
On the other hand, low doc loans are known to become less common, mainly because of responsible lending requirements. These require the lender to be sure that you can handle your loan repayments without any problems.
However, a low doc loan is the perfect choice for fairly new businesses that don’t have two years of financial data to show their lender OR have a complex tax structure and cannot prove their income via tax returns. Low Doc lenders accept the following as income verification:
1. Letter from accountant declaring income
2. Self declaration of income
3. BAS statements
4. Business bank statements
The biggest disadvantage of low doc loans is that they may come with a much higher interest rate. Moreover, they are not offered by all lenders, however we have access to all the lenders who offer low doc loans and will match you with the most suitable bank.
You may also be asked to make a larger deposit than in the case of a traditional home loan as Low Doc Loans typically come with lower Loan to Value Ratio (LVR) requirements.
Another question that most self-employed people have is related to the time they’ve been on the market, so to speak. If you’ve just started your business, securing a home loan can be a tedious and challenging task.
However, the rules and requirements that come with home loans for the self-employed are in place for a very good reason.
As you may know, small businesses usually don’t make it past the first couple of years – hence the two years of business and personal tax returns that you are required to show your lender.
Even though you may want to move into your own home as soon as possible, it is better if you can endure your current environment a bit and see how you deal with running your own business.
After all, you don’t want to get a home loan that you won’t be able to repay because your business fails in the meantime.
Self-Employed Home Loan Borrowers
As you may have noticed, the self-employed have to go through a bit more when trying to secure a loan for their home. Keep in mind that this doesn’t make it impossible!
Here are some tips that you should pay attention to when you consider getting a home loan:
Financial Information – once again, we stress out the importance of up to date financial information. Financial statements notice of assessments, and income tax returns have to be updated at all times.
Understand Your Assessment – self-employed people are assessed differently by the banks; some may use the average income of your last two years, some the lower of the last two years, while others may use different methods.
Understand Self-Employment – if you are a sub-contractor or contractor, then you may be regarded as an employee by some lenders. Check to make sure that you can really be considered as a self-employed person before applying for home loans designed for the self-employed.
Credit History – small business owners that want to protect their credit rating will always pay attention to their credit history – the solution is the implementation of positive credit reporting.
The Bottom Line
As you can see, self-employed people are able to apply for a loan and actually get it. You may have to consider other things when applying for a home loan, but this is what you have to expect as the owner of your own small business.
If you need any help with your application or understanding how home loans for the self-employed work, feel free to contact our office! Given our staff’s years of experience in terms of finding the best possible loan for our clients, we can help and guide you through the entire process!
The result will leave you with a loan that exceeds your current one and is, overall, better than you may have available now. Contact us today if you have any questions or you simply need more information! Contact us on on 02 9121 6247 or submit your scenario online.
So, why use Highline Lending for your home loan?
We meet for a consultation, obtain your supporting documents and proceed to structure and package your application for approval knowing exactly what the banks want to see. We also monitor your home loan post approval ensuring you’re home loan suits you and your financial position
We get paid a commission from our lenders as a result of introducing your business to them. Subsequently, our service is at no cost to you. Our commission does not affect your interest rate whatsoever, if anything, we’re in a position to get you a lower interest rate than the general public due to our relationships with our banks
With our many years experience in the industry, we’ve been exposed to both easy and complex loan scenarios. Each loan we process gets presented to over sixty financial institutions, ensuring we have explored all options possible and are able to provide a solution