By Damien Rouse, Westlawn Business Finance Specialist & Mortgage Broker 20 October 2015
If you’re self-employed and in the market for a home loan, you may believe your options are limited. You may even think your only hope is a low-doc home loan that will cost you much more in fees and higher interest rates. But, that’s not necessarily the case. As a self-employed person, you can still apply for the same prime home loans at the same low rates currently on offer to employees earning a regular salary.
Applying for a low-rate home loan may not be as straightforward for the self-employed as it is for the employed, however. Where an employed home loan applicant can easily provide payslips to verify their income, it’s naturally not that simple if you’re self-employed.
Verifying your income is key to qualifying for a low-rate, full-doc home loan. So, it’s vital to understand what the lender will need from you and how they’ll assess your application.
How will a lender verify my income?
To verify your income from your business, most lenders will ask you to provide 2 years lodged tax returns and financial statements. This may include your personal tax returns, company, partnership or trust returns as well as tax assessment notices.
A lender may also request BAS statements, bank statements for up to 12 months for refinancing or a declaration from your accountant.
It’s a definite advantage if you always keep your tax returns up to date. By doing this, you can show the lender your most recent income history whenever you’re ready to apply for a home loan. And remember, it pays to provide full disclosure and be up front with your lender from the start. This will both save you time and improve your chances when applying for a full-doc home loan.
What are lenders looking for when assessing my application?
When assessing your home loan application, lenders will be looking for consistent income over time to show that you can maintain a certain income level that will allow you to meet the minimum servicing requirements of your loan.
A common issue for many self-employed people seeking finance is their focus on reducing their taxable income in order to pay as little tax as (legally) possible. When applying for a full-doc home loan, however, adopting this approach can put you at a disadvantage. Without an adequate taxable income, you’re unlikely to get approval on a full-doc home loan in today’s environment of responsible lending practices and increased regulatory scrutiny.
Why use a mortgage broker?
For any self-employed person seeking a low-rate home loan, working with a mortgage broker can significantly increase your chance of approval.
A mortgage broker will:
Understand the various options available to you from different lenders
Advise you on what financial information you’ll need to satisfy the requirements of any particular lender
Help you determine how much you can realistically borrow, and
Assist you every step of the way with your home loan application.
Tips to securing a low-rate home loan
Keep your tax returns up to date.
Demonstrate consistent income over time.
Speak with a mortgage broker. They understand what paperwork you’ll need to provide to various lenders. They can also help you determine how much you can realistically borrow.
Reduce expenses such as any personal credit cards and personal loans. Consider reducing credit card limits also, as lenders take into account your spending limit, not your outstanding balance.