Getting a home loan when you're self-employed
If you're a self-employed borrower or you own a small business, you are already familiar with the ongoing challenges of keeping your accounts, finances and income all on track. It's not easy. Getting a home loan doesn’t have to be yet another financial issue to worry about. Here are four steps that every self-employed borrower can take to prepare for the home loan process.
1. Know your numbers
When lenders are assessing a home loan application, they look for a steady level of income that shows them you are able to make your mortgage repayments. Start by showing the paperwork that tells them that you have been self-employed for a consistent amount of time and that you earn a regular amount each month. Being able to show these things will work in your favour.
Non-bank lenders understand that it’s sometimes challenging to provide all the paperwork necessary to document your income. Alternative documentation home loans are designed to meet the unique needs of the self-employed who can't provide the same income documentation required by traditional lenders.
When a non-bank lender assesses an alternative documentation application some of the things that they will look for are:
Has your business been ABN registered for at least 6 months?
Has your business been GST registered for at least 6 months?
Business Activity Statements (BAS)
Bank Account Statements
2. Fast track to your goals
From the outset, it's really important to be upfront with the selected lender about what's been going on in your business. This is particularly essential if there are any large variations up or down in the taxable income shown on your annual financial statements from one year to the next. Specialist lenders have experience with a range of borrowers who are self-employed and they’re familiar with assessing the particular cash flows of small businesses.
3. The taxable income dilemma
One of the major challenges self-employed people and small business owners face is their taxable income. The thing to consider when you address this question for your business is how your financial statements will impact your borrowing options in the future. Talking to your taxation professional about your goals when you work out your taxable income is an important step in positioning yourself for a successful home loan application in the future.
4. Improving your cash flow
Making the most of your cash flow using a well constructed strategy can be beneficial for people who are self-employed. Paying off any outstanding debts such as credit cards or personal loans will positively impact your cash flow, and potentially your credit score, which may also mean you'll qualify for a higher loan amount with some lenders. To get an idea of how much you can potentially borrow, why not try our Borrowing Power Calculator.
If you’re having trouble because of your type of employment or because your income type doesn't tick the right boxes, talk to your trusted Mortgage Broker to find out more about the self-employed home loan options that are available to you.
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