Being your own boss has many great perks and advantages. You can set your hours, pay less tax, and you decide what you want to work on. It does have some drawbacks, though, especially when it comes to securing financing from financial institutions.
Securing a loan to buy a property can be tricky when self-employed. In this guide, we’ll walk you through some of the steps involved.
Be Financially Stable
Financial stability is the most important criteria when it comes to attempting to secure a loan or financing for a property purchase. Before you attempt to apply for a loan, make sure you fulfil the criteria the banks are looking for in a borrower. The most important factor is to minimise your debt exposure. If you have lots of open credits cards with high balances—even if you pay them regularly and can afford them—it will be seen as a significant risk factor.
It’s important to have your finances in place before your lease comes to an end and you’re forced to find a new place, so your expenses remain stable when you apply for the loan.
Prepare Your Documents
Applying for financing or a loan while self-employed can often involve jumping through a few extra hoops in terms on documentation. Banks and institutions will often want additional records and documents to prove your suitability and income compared to employees so make sure to have all your documents—bank statements, profit/loss records, tax returns—in place before attempting to apply. Speak to the bank beforehand to find out what documentation they may require.
Get Pre-approval for Financing
Having financing in place before you set out on your property ownership journey will help save a lot of time and potential disappointment later. The approvals process can take longer when self-employed due to extra financial capability checks the banks may wish to do, and you don’t want to miss out on your dream property because you couldn’t secure the financing in a reasonable timeframe.
Find Your Property
A property purchase is a big step for anybody, especially those that are self-employed. You don’t want to run into expected issues that end up costing you thousands more than you had anticipated and budgeted for. If you are planning on buying an off the plan home, then you need to take extra steps to do your due diligence. Select a property, but before moving forward have it thoroughly vetted.
Make the Offer
The final step in buying a property is making the actual offer. Most properties are not sold at a fixed price so there is some room for movement. When making an offer on your chosen property, consider the asking price then adjust for what you think you can afford and the results of the due diligence. The most important thing to remember is to not commit to an offer that is beyond your financial means.