HOW TO APPLY FOR A HOME LOAN WHEN YOU'RE SELF EMPLOYED
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Self-employed borrowers come up against the challenge of not being able to simply present payslips and tax returns to back up their loan applications. But this need not stop you buying your dream home or from buying your first or next investment property .
Many lenders offer loans for self-employed borrowers who can’t hand over payslips and employment records. This means that, rather than the usual documentation, you prove your ability to service a loan using bank statements, declarations from your accountant and financial records.
Of course, as with any mortgage application, you must still prove that your income outstrips your spending and you can service the loan. Getting this right is more than presenting a lender with a few quick sums on the back of a napkin; it can take some time to get yourself in a position to apply for a home loan...
Here are some quick tips:• reduce debt: pay down credit cards and personal loans, and be sure to lower the credit limits as they are paid down, as lenders assess the total credit available to you as a potential debt level, not just the amount you owe;• cancel credit cards that you don’t need and or don't use (this will affect credit scoring);• speak to a mortgage broker about how the structure of your business and your taxable income will impact your ability to borrow;• do your taxes when you should, and always pay your tax assessments on time;• save: saving a deposit is obviously important, and showing your ability to live within your means while saving is too. This is key to serviceability – you want to show at least a six-month history of high income and low expenses; and• go to an MFAA Approved Mortgage broker, rather than a bank. Mortgage brokers have access to specialist lenders that assess applications on a case-by-case basis and tailor their products to self-employed borrowers and contractors, while bank lenders do not.
Loans to the self-employed do differ from standard loans in a few ways, apart from the application process. Lenders offset the extra risk they are taking when lending to a self-employed borrower or contractor by charging slightly higher interest rates and placing some extra rules on loan-to-value ratios (LVR) and insurance requirements. Generally, you can expect an interest rate for such a loan to be one to two percentage points higher than for a full-documentation loan.
Most lenders will also insist on an LVR of no more than 80% – meaning that under no circumstances will they lend more than 80% of the property value, as assessed by the lender. However, there are specailist lenders that will consider higher than 80% LVR home loans and we can source these for you.
Let us help you navigate the loan market as a self-employed borrower. Contact us today to discuss your options.
Many lenders offer loans for self-employed borrowers who can’t hand over payslips and employment records. This means that, rather than the usual documentation, you prove your ability to service a loan using bank statements, declarations from your accountant and financial records.
Of course, as with any mortgage application, you must still prove that your income outstrips your spending and you can service the loan. Getting this right is more than presenting a lender with a few quick sums on the back of a napkin; it can take some time to get yourself in a position to apply for a home loan...
Here are some quick tips:• reduce debt: pay down credit cards and personal loans, and be sure to lower the credit limits as they are paid down, as lenders assess the total credit available to you as a potential debt level, not just the amount you owe;• cancel credit cards that you don’t need and or don't use (this will affect credit scoring);• speak to a mortgage broker about how the structure of your business and your taxable income will impact your ability to borrow;• do your taxes when you should, and always pay your tax assessments on time;• save: saving a deposit is obviously important, and showing your ability to live within your means while saving is too. This is key to serviceability – you want to show at least a six-month history of high income and low expenses; and• go to an MFAA Approved Mortgage broker, rather than a bank. Mortgage brokers have access to specialist lenders that assess applications on a case-by-case basis and tailor their products to self-employed borrowers and contractors, while bank lenders do not.
Loans to the self-employed do differ from standard loans in a few ways, apart from the application process. Lenders offset the extra risk they are taking when lending to a self-employed borrower or contractor by charging slightly higher interest rates and placing some extra rules on loan-to-value ratios (LVR) and insurance requirements. Generally, you can expect an interest rate for such a loan to be one to two percentage points higher than for a full-documentation loan.
Most lenders will also insist on an LVR of no more than 80% – meaning that under no circumstances will they lend more than 80% of the property value, as assessed by the lender. However, there are specailist lenders that will consider higher than 80% LVR home loans and we can source these for you.
Let us help you navigate the loan market as a self-employed borrower. Contact us today to discuss your options.
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1. Work out what is realisticDo your homeowrk first, start by thinking about the amount of money you need to borrow, how you want it supplied and the type of security you want to provide (residential, non-residential, equipment, or none at all). Using a residential property for secuirty can be beneficial as some lenders will often loan more if secured against a residnetial property rather than commercial property, however, you have to weigh up the risks.
2. Find a mortgage brokerThe next step is to speak to an MFAA accredited mortgage broker, who can help you work out what loan type and lender are best for your business and you. Mortgage brokers work with clients to determine their borrowing needs and abilities, select a loan suited to their circumstances and manage the process through to settlement. They also assist with some of the legal and other paperwork, they have access to a wide range of loans and are experts in the area.
3. Have a credit history and make it goodLenders are looking for two things when it comes to your credit status: an existing credit relationship and a relatively clear history. If a borrower already has an existing loan which they’re servicing on time, they are much more likely to be successful. Of course, there are options for those who are either credit impaired or just don’t have a documented credit history, and a mortgage broker can help clarify these.
4. Actively show how risk will be minimisedDemonstrate how you will lessen the risk to you and to the lender. Show how your business is growing and can afford the loan. Paint a picture for the lenders assessor, for excample, how long have you being in business, your experience in this type of business, the growing demaind for your services/product and the benefits of this business loan to that growth.
5. Be preparedFor your first meeting with your mortgage broker, have up-to-date paperwork and tax records, make sure you’ve done your research and have a fair idea how much you want to borrow and how you plan to spend it. You should also know your total worth, listing your assets and liabilities.
6. Have a planLenders like to see a business plan that shows that you know what you want to achieve and have a clear idea of how you can achieve it.
7. Provide more than one exit strategyLenders want to know how they’re going to get their money back and some want up to three scenarios for what is called the ‘exit strategy’.
2. Find a mortgage brokerThe next step is to speak to an MFAA accredited mortgage broker, who can help you work out what loan type and lender are best for your business and you. Mortgage brokers work with clients to determine their borrowing needs and abilities, select a loan suited to their circumstances and manage the process through to settlement. They also assist with some of the legal and other paperwork, they have access to a wide range of loans and are experts in the area.
3. Have a credit history and make it goodLenders are looking for two things when it comes to your credit status: an existing credit relationship and a relatively clear history. If a borrower already has an existing loan which they’re servicing on time, they are much more likely to be successful. Of course, there are options for those who are either credit impaired or just don’t have a documented credit history, and a mortgage broker can help clarify these.
4. Actively show how risk will be minimisedDemonstrate how you will lessen the risk to you and to the lender. Show how your business is growing and can afford the loan. Paint a picture for the lenders assessor, for excample, how long have you being in business, your experience in this type of business, the growing demaind for your services/product and the benefits of this business loan to that growth.
5. Be preparedFor your first meeting with your mortgage broker, have up-to-date paperwork and tax records, make sure you’ve done your research and have a fair idea how much you want to borrow and how you plan to spend it. You should also know your total worth, listing your assets and liabilities.
6. Have a planLenders like to see a business plan that shows that you know what you want to achieve and have a clear idea of how you can achieve it.
7. Provide more than one exit strategyLenders want to know how they’re going to get their money back and some want up to three scenarios for what is called the ‘exit strategy’.