Self-employed? Applying for a home loan? Here’s 5 things to keep in mind…
If you’re self-employed, you may know that when it comes time to apply for a home loan things are a little different to those on Pay As You Go (PAYG) income. You’ll need to work harder to prove your income and stability, and are more closely scrutinised by the lenders. However! That doesn’t mean that all hope is lost. By putting together a winning team of professionals to help and advise you, and some strategic planning, you’ll be buying that new investment property or family home without your hair turning grey!
Know your credit score. Important for all applicants, not only self-employed; your credit score is often used by lenders to help them make a decision on your worthiness as a borrower. It’s crucial that you’re aware of what’s in there – so that any mistakes or outdated information can be remedied before you present yourself to a lender.
If you have not yet done last years tax return, and are thinking of purchasing a property or refinancing an existing loan; now might be the time to get that tax return done. If you cannot get it done for some reason, talk to your mortgage broker about lenders who may be willing to work off alternative income evidence such as BAS statements (Low Doc or Alternative Doc Home Loans). Be aware here though, that lenders willing to look at alternative income evidence may charge a higher interest rate or higher fees.
If possible, time spent planning is even more crucial for self-employed applicants. More often than not, your tax returns may not be an accurate reflection of your true income. Often, your accountant will be very good at reducing your taxable income, which is fantastic – until you try to apply for a loan and that lower taxable income is not quite enough to meet servicing requirements for a loan. Work with your broker and accountant together to ensure that you are able to prove that your income is what you say it is. Add-backs are your friends – examples being depreciation, one off expenses, interest expenses and rental property expenses. These can help boost your income, so your broker needs to have a full understanding of your finances before presenting you to a lender.
Business loans generally come with a higher interest rate than usual. Talk to your broker about lenders that may look at lending at residential interest rates for business purposes when you use a residential property as security.
Make sure your broker is aware of your long term plans and puts you into a loan that will work for you into the future. Work with them to formulate a plan to get you to where you want to be.
A Winning Team
Your broker, accountant, financial planner and conveyancer should all communicate with each other as well as you. This will ensure that your entire team knows where you are headed and the best way to get you there. If your team are communicating well with each other, it will also help you step back when you need to, and know that your finances are in good hands – while you focus on what’s important!