Are you a self-employed person, business owner, an independent contractor, or a freelancer who has been asking around for tips on loan applications?
While it is true that applying for a home loan is more complicated for individuals like you,
What is a self-employed person?
A self-employed person is someone who operates their own business or profession. They often work from home and don’t have a regular employer. Self-employment has become increasingly common — in fact, 10.6% of Australia’s workforce, or 1.388 million people, worked as owner-managers of their own businesses without employees in February 2021.
Self-employment is becoming increasingly attractive to many people because of the flexibility it offers. The downside is that it can be more challenging to manage finances effectively and apply for loans. Fortunately, more lenders are becoming open and accepting of self employed borrowers and are now setting more relaxed terms for them.
What is self-employed loan?
A self-employed loan provides business owners with opportunities to get a personal loan, business loan, and home loan that banks are not usually able to assist them with. What sets a self employed home loan apart from regular home loans is that you’ll be asked to provide your personal tax returns and other financial statements related to your enterprise as proof of income instead of paperwork from an employer.
Self-employed tips for borrowing
Below are mortgage tips for self employed that will help you fast-track your homeowner’s journey.
1. Be honest with your lender or broker
A home loan application for self-employed borrowers typically involves more documentation. That is why it is important to build a relationship with your lender or mortgage broker at the onset so they can understand your unique situation better (cash flow, income variations, financial statements), get context and background information, and help you with the inevitable nuances, documents, and prerequisites that you have to cover.
2. Think about tax and paperwork early
Disorganised and incomplete financial documents can really delay your application for a self employed home loan. It is best to get them sorted as early as possible and arrange them in such a way that is easy to access and interpret.
For the self-employed, it’s important to keep track and update your expenses, taxable income, and personal tax returns for at least two years (this is normally how long you must be self-employed before lenders can consider your home loan application).
3. Manage and improve your cash flow
Despite having a solid annual income as a self-employed person, your cash flow isn’t always regular. Sometimes it takes weeks or even months for pay cheques to arrive.
It is best to make big purchases after you’ve paid yourself and your bills, and once you’ve secured your savings — after all, you don’t have the benefit of paid holidays or sick leaves, so always prepare for the unexpected.
4. Build a solid deposit
There are a few ways to increase your savings and set your home deposit savings goal. One of the best ways to review and reduce your spending. You can identify areas you can cut back on and funnel those funds into your savings account.
Banks and lenders will look at your genuine savings (money you saved up gradually over time) and take that into account when assessing your home loan application. Ideally, your genuine savings which you will use as your deposit for your mortgage should be 20% of the property value so you can keep your options wide and avoid paying Lenders Mortgage Insurance (LMI).
6. Pay your bills on time
Being prompt with paying your bills will positively impact your home loan eligibility. Lenders will take a look at your history of consistent bill payments, which will give them the impression that you are a conscientious and reliable borrower.
It’s also a good idea to pay off any outstanding debts to help improve your credit score. Having a great credit score will help you qualify for a bigger loan amount with some lenders.
7. Talk to an experienced self employed mortgage broker
When applying for a self-employed personal loan, taking advice from a broker with lots of experience in dealing with self-employed loan applications will make things simpler for you and will help improve your chances of getting an excellent loan that suits your particular needs.
Your mortgage broker will offer practical tips and make sensible recommendations, even if you aren’t planning to apply immediately. In fact, talking to a mortgage broker early on before you start looking at loans will make the application process much smoother when you’re ready.
All mortgage brokers are legally obliged to work in your best interest. Here at Stryve, we will help you with your home loan application and won’t charge anything upfront. Instead, we get paid by the lender, so we’re always there for you no matter what happens.
We have a ‘client for life’ approach. That means we’ll be by your side every step along the way, making sure you choose the right loan for your unique situation.
