4 Simple Steps to Secure a Loan When You’re Self-Employed
Almost 12 percent of the Australian population now self-employed and that number is growing. So why does the title of being self-employed send red flags to lenders when it comes to buying a house in Brisbane?
The main difference is that a salaried employee has a regular, steady income compared to a small business owner who relies on other people to pay their invoices before they too can be paid. In addition, 80-90% of all small businesses that set-up are not trading after 4 years. So banks want to ensure income can be relied upon long term.
But by being proactive and following these easy steps, self-employed borrowers can also secure a home loan just as easily as those who have a long-term employed job.
4 Steps To Securing A Home Loan When You Are Self Employed
Here’s a list of 4 simple steps to secure a self employed home loan. Check below simple steps to better know how to get the best home loan if you are self-employed.
1. Check your credit history
It is important to know what is detailed on your credit report so you know what might be impacting you when it comes time to apply for a loan.
You’re entitled by law to get one free credit report every 12 months.
Your mortgage broker can help you assess your credit report and talk you through the details.
2. Get all your documents organised
When you’re self-employed it’s important to have all your business financials organised and completed. This also includes your personal and business tax returns and financials for the last two years.
If you can show a fairly consistent income and profit then applying for a loan should be relatively straightforward. Normally it is averaged over the past 2 years, with not more than 20% increase allowed up on the previous year.
However, some lenders will allow the use of just the last financial year’s income, as long as you have been trading 2yrs+ and there is a valid reason why your income has jumped from the previous year.
3. Explore low doc loans
Low doc or Alt Doc loans are offered by a wide range of lenders and as the name suggests, require less documentation than traditional loans.
Some low doc loans require 12 months of business activity statements or Business Bank 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, meaning you could need a larger deposit. And they are often at a slightly higher interest rate.
4. Get expert mortgage broker advice
Being self-employed is just one of the many challenges you will face when it comes time to purchase a home. So it makes sense to seek expert advice. A mortgage broker in Brisbane is the perfect place to start as they can provide you with an up-to-date overview of which home lenders are currently accepting self-employed home loans application and the types of loan products available to you. They can also give you some advice early on – so prior to completing your financials for the year – maybe have a chat 2-3 months out as often changes can be made to how the income appears which could assist your income and loan application.