If you work for yourself, or fall under the category of ‘self-employed’, applying for a home loan can be quite a challenge even if your income is regular. Unfortunately, many lenders perceive self-employed people as high-risk borrowers.
But this does not necessarily mean you cannot qualify for a home loan. It just means you might need to put a little bit more effort in to get your home loan approved. If you’re in this situation right now, where you're finding it difficult to qualify for a loan, here’s some tips and tricks to get your loan application approved.
As someone who is self-employed applying for a loan, your main goal is to prove your income to your lender. You can do this by providing your personal and business income tax returns for two years and also the profit and loss statements of your business. Lenders want to see consistency in your income.
You can ask a professional such as an accountant or a broker to help you document your personal tax returns and financials. Also, make sure that your income tax returns are lodged with the Australian Taxation Office (ATO).
This may be easier said than done, but a healthy amount of deposit can boost your chance of qualifying for a loan. It shows the lender that you’re a lower-risk borrower and that you’re financially disciplined. Generally, putting down 20% or more of the value of the property is ideal. This also gives you the benefit of not having to pay for expensive Lender’s Mortgage Insurance.
Your lender will need to see proof of your deposit. So you will need to prepare a list of your assets. This could mean showing bank statements to confirm your savings or term deposits. At least six months of recent bank statements will be required. Other assets may include any investments like stocks and rental properties. Moreover, if you already have an existing property, you can use your equity when you apply for a loan.
Whether you’re self-employed or an employee, a high credit score will increase your chance of qualifying for a home loan. Remember, your lender will not just run a credit check on you, they will also inspect the credit history of your business, so make sure that your business’s credit score is healthy too.
If you find yourself with bad credit, you can still improve your credit score by sorting out any unpaid debts and making sure that you continue paying your debts on time. You can also check your credit score from your provider to make sure there are no mistakes.
If you have only been self-employed for a few months it will make you a less attractive candidate for a loan. So make sure that you’ve been successfully self-employment for a couple of years.
Looking to finance your house when you’re self-employed may take a little more work and preparation compared to being an employee. But getting your home loan approved is still possible as long as you have your financial documents in order to prove your income.
Tags: home loans | self-employed home loans