An increasing number of people who are self-employed believe that they cannot get a home loan. But, the reality is different. You can get a home loan but you just have to work a little bit harder and pay close attention to the details.
Tips to help you get a Home Loan
Here is a list of useful tips to help you when you are trying to get a home loan as a self-employed applicant:
1. Speak to a Professionally Qualified Expert Finance Broker
If you do not work with a professionally qualified expert finance broker, you will have to consider the possibility of wasting your valuable time by running around on your own trying to find a home loan that best meets your needs and circumstances. But, a finance broker will save your valuable time because he/she has complete knowledge of how loan for self-employed applicants work.
2. Establishing your Borrowing Power
In order to know your borrowing power, a self-employed applicant can:
>> Use a Borrowing Power Calculator, or
>> Seek help from a professionally qualified finance broker and know the amount you can borrow from a lender/credit provider.
3. Determining your Serviceability
When assessing your eligibility for a home loan as a self-employed applicant, traditional banking institutions will look for consistency of income as they want to see that:
>> You are a business owner or a partner;
>> You maintain a steady income and that your level of income is suitable to meet their minimum servicing requirements; and
>> Your business has been ticking along steadily and you have been trading in your current business for at least 24 months.
4. Verifying your Income
To confirm your income as a self-employed applicant, traditional banking institutions will require your most recent two years’ Personal and Business Income Tax Returns.
However, tax returns are just one example of how you can verify your income. There are alternative ways to show that you can afford a loan as a self-employed applicant, for example:
>> One way is via your Business Activity Statements (BAS). Your BAS shows the turnover of your business’ profit. BAS reflects the current status of your financial situation. As it is completed either monthly or quarterly, it is considered to be an applicable source of income verification by other non-bank lenders/credit providers.
>> Another way your income can be verified is to have your accountant speak with a non-bank lender/credit provider so they can confirm with each other the state of your business’ financials.
Note: Tax returns are considered to be the most common and traditional form of income verification for self-employed applicants. You should, however, keep in mind that if you verify your income in an alternative way, some non-bank lenders/credit providers may charge a higher interest rate.
5. Compare Home Loans
Take time and do some homework by comparing home loans that are offered to self-employed applicants by different lenders/credit providers as it can be confusing to know:
>> Should you get a variable rate or fixed rate home loan?
>> Should you get a principal & interest rate or an interest-only rate home loan
>> What payment frequency can you consider (i.e. weekly, fortnightly or monthly)?
>> Can you make additional repayments?
>> Can you have a redraw facility?
>> What fees and charges will be charged on your home loan (e.g. application fees, ongoing fees and more)?
>> If you decide to repay your home loan sooner, will you be charged an exit fee or an early termination fee?
>> Will your lender/credit provider charge you a break fee for ending a fixed rate loan before the term expires? If yes, how much will you be charged?
6. Other Factors to Consider
Traditional banking institutions may turn you away just because:
>> Your employment status shows you as being self-employed;
>> Being a self-employed applicant, you lack a regular income;
>> You may be unable to provide business financial statements that prove your ability of paying back the home loan; or
>> You may be recovering from a bad credit history which can happen when you are self-employed (i.e. it may be that the bad credit history was a result of mitigating circumstances beyond your control).
Note: Even if you have an impeccable credit file, a traditional banking institution can deny you a loan, simply because you are self-employed and you have an unreliable income.
Being self-employed, you may have realized on a number of occasions that you have to jump through a number of hoops just to get a home loan from the traditional banking institutions. But, do not lose hope, get in touch with an expert finance broker and get ready to work for obtaining a home loan easily.
