Being self-employed can have many advantages when it comes to everyday life especially when it may tie in well with working around family commitments, however you may find yourself disadvantaged when you go to apply for finance compared to someone who is an employee of a company. Whether it be for a personal loan, car loan or even a home loan this is due to the fact that someone who is employed by a company will have a steady income with a set base income amount with the ability to provide a copy of an employment letter or employment contract in place to show Part Time or Full Time employment.
Who to talk to?
If you are self-employed this is where talking to an experienced mortgage broker will work in your favour as they will be able to assist you with finding the most suitable solution for obtaining finance for your situation. Your mortgage broker will be able to have a look over your current situation just like someone who is an employee and be able to research and assess which lenders are most comfortable lending and what will be most suitable for the proposed situation at hand. Your broker will be able to explain to you what loan products are available along with the benefits associated to help you with achieving your short and long term goals.
What can you do?
Prior to starting the loan application process and in the intermediate stages of researching your options your broker will be able to let you know what sort of documentation you will need to have ready prior to submitting your application. In most cases self-employed applicants will need to provide their full business financials along with personal and business tax returns for the past two years. If these documents are provided to your broker and they show a consistent income along with growth, applying for a loan should be relatively straightforward within reason. In some cases there will be conditions the lenders assessment team will request from time to time, don’t stress it is simply part of the process and if they request a piece of information they are simply looking to seek clarification.
If you are self-employed and unsure of your credit score, it may work in your favour to order a credit file report prior to applying for a loan to ensure there are no defaults to your name. Don’t hesitate to talk to your mortgage broker even if you are in the initial stages of working out what it is you would like to achieve, your broker is there to help you and if you are unsure they will be there to guide you and point you in the right direction. If you happen to order a credit file report and it shows a default that you are unaware of, in many cases you can actually rectify and tidy up the issue with the interested party. In some cases you can actually request to have the default removed from your file, although this is not always the case.
Is time on your side?
One of the common issues that come with being self-employed and running your own business is many self-employed applicants’ tax returns are not up to date. If you happen to find yourself in this position and have time on your side, consider talking with your accountant to lodge your outstanding tax returns as this exercise can be somewhat time consuming and stressful at times, if you happen to find yourself in the position where you need something done last minute, don’t hesitate to get talking to a broker prior to taking the plunge and they will be able to advise on the best path forward.
Low doc home loans are a type of home loan specifically for self-employed applicants who are unable to prove their income through traditional ways and means. This type of loan is seen as high risk to lenders and with this you may be hit with a higher interest rate, lower maximum LVR and LMI is applied generally from 60%. This is the only way finance can be obtained without having to provide recent tax returns or financial statements.
Low doc loan products are offered by the vast majority of lenders and as the name suggests they require a lower amount of documentation compared to that of a traditional full doc home loan application. Many low doc loans require 12 months of business activity statements to be provided as opposed to full financials. It is best to engage with the services of a qualified mortgage broker as they will be able to assess if this option is actually suitable for you.
It may be possible to apply for a home loan using a Certificate of Income Declaration which is a document that verifies your income. This type of document is drawn up and signed off by your accountant. It is in your best interest to talk to a qualified mortgage broker if you are thinking about applying for this type of loan as your mortgage broker will be able to advise if this option is actually beneficial for you to consider. Applying for this type of loan will in many cases mean the maximum loan to value ratio applicable will be lower and each application is assessed upon case by case situation.
For self-employed borrowers while it does seem like there a number of hoops that are needed to be jumped through, there is still many options to assist with obtaining finance for a home loan which can be achieved if you have a mortgage broker on your side.
There will be advantages and disadvantages for different individuals and their situations, so it is important to speak to your mortgage broker about what your intentions are and to find out the most suitable option. Remember your mortgage broker can always help you with any questions you might have. If you have any queries or a question regarding specific information around being self-employed and obtaining finance and don’t hesitate to talk to your mortgage broker Gerry and he will be able to assist with answering any questions.