What does a Self-Employed Individual have to go through for a Home Loan ?

Today lets unpack the challenges a Self-Employed person can face when applying for a home loan and Tips and Tricks on facing these challenges.

Challenges you may face as a Self-Employed Borrower:

1. Income and your Ability to Repay - Unlike Salaried/PAYG Individuals who have years of pay slips, Self-Employed Individuals will need to show (based on most lenders) up to 2 years of Income Tax Returns and more (Read Below).

Some lenders may also consider:

• Last 1 year Income Tax Returns
• Lowest Income of the last 2 years
• An average of the last 2 years Income

2. Age of your Business or Industry - Has your business started in the last two years ? or Have you moved in to a new industry within last two years ?

If so, then according to most lenders criteria, you may not be able to be eligible... However there are some lenders who still may look into your story (This is where Lo-Doc Loans may help...I'll talk about this further on in this article)

3. Assessment Period of your Application: Self-Employed individuals who have complex business structures, may require a in-depth assessment by Lenders, which can take longer than the more simple businesses. This is why it is important to have a Pre-Approval in place when purchasing or using "Subject to Finance" offers to keep yourself protected.

Now that you know the challenges, here's some Tips:

1. Don't Assume Lo-Doc or Alt-Doc is the best option: Chances are that with a good Credit Rating coupled with Tax Returns from last 2 years, that you may well qualify for a regular full documentation home loan.

The last thing a Business Owner/Self-Employed Individual needs to worry about is paying hundreds if not thousands of dollars more in interest with an Lo-Doc or Alt-Doc loan.

Alt Doc/Lo-Doc Loans usually charge a higher interest rate due to the higher risk in lending.

2. Alternate/Low Documentation Loan: A Lo-Doc/Alt-Doc loan might be most suitable for individuals such as those:

• Who have experienced a surge in business activity which has lead to growing income from last few months. This will allow them to use their more recent statements to represent their latest income rather than using their last 2 years Tax Returns which may not represent their most recent and updated income.
• Who have Damaged Credit Reports: as you may have changed up your spending habits, and there may be lenders who will be willing to hear your story and how your habits have changed for the better.

Note: Not only are these higher risks for the Lenders, but also for You as a customer as you're still being charged a higher rate, so always remember to consult your Accountant. (Contact me if you'd like access to my own Professional Accountant's Advice/Services based on your Financial Position)

Alt-Doc and Lo-Doc still require Income Verification documents, which may vary based on the lender but most lenders will require the following:

• Australian Business Number (ABN) registration for your business
• An accountant declaration of your income
• Six months of Business Activity Statements (BAS)
• Six months of business bank statements
• Six months of tax returns
• Three months of personal bank statements

3. Prepare your Documentation: Here are some of the documents/information that you should prepare for your Broker when applying:

• Past 2 years Income Tax Return
• Clear summary and understanding of your business structure (Revenue, Expenses, Credit) with all details neatly organized. (This is something your accountant can prepare for you)
• Manage your Debt: Credit Cards and Car Loans etc. greatly affect your borrowing capacity and can make or break your home loan approval. So ask yourself: Can I repay this debt ? or Do I really use or need this Credit Card ?. As Rates Rise and lending gets tighter, Self-Employed individual's living expenses go through more scrutiny in comparison to a regular borrower.

4. Speak to a Professional Mortgage Broker: They are legally obliged to work in your best interest and if they are good, upon looking at your financial position, they will know which lender is best for you.

However I understand if you have had a bad experience before with a Broker, which has deterred you from using one again. The advice given in this article still applies for Bank Professionals or other Lenders. But if you ever want to give it another chance with a broker, I'd love to help.

FINANCE AS YOU GROW CAN HELP

Self-Employed individuals have enough to stress about, so why not let us do all the work ?

Our team, which includes a combined 10 years + of Industry experience will find you the tailored solution from a panel of over 35+ Lenders.

Most people can't name more than 4-5 Banks/Lenders, which isn't to knock you, but to explain to you that different lenders have different criteria and eligibility... indicating that while you may not be eligible with one lender, there may be another lender out there willing to lend you !

LET'S CHAT IF YOU'RE LOOKING FOR A HOME LOAN ADVICE

To learn more about how we can help you have a Successful Home Loan Approval, book a no-obligation call below:

https://calendly.com/financeasyougrow/30min

or

Contact me:

Email:[email protected]

Phone:?0424 701 736