Self Employed Home Loans

You’ve decided that the time is right to buy a home, but you’re self-employed and you’re not really sure how that affects the home loan process for you. You know that you’ll likely have to jump through more hoops than the average home buyer, but exactly what does that mean?What do you need to do to get a self employed home loan?

 

What are Self Employed Home Loans?

 

Generally speaking, if you’re self-employed, you’re more than likely going to be applying for what is referred to as a low-doc home loan. Simply put, this type of mortgage doesn’t have the same requirements that a standard home loan would in terms of the paperwork you need to provide. These types of loans are not as common these days, due to the nature of the Australian lending market, but there are still plenty of options available to you if you’re self-employed, such as a fixed or variable rate home loan.

If you’re applying for a self-employed home loan, you know you don’t have access to the same financial and taxation information that a person who is employed would have access to.

 

What Documentation is Required?

 

While you may not have to provide the same documentation as a standard borrower, you will still have to provide some information to verify your income. The following is just some of the documents you’ll need to have access to when you’re applying for your home loan:

  • An income declaration form
  • A copy of your recent business activity statements and tax returns (if you have access to them)
  • Your ABN or ACN proof (registered for more than two years)
  • GST registration

That last point is important. You can register for GST at anytime but you MUST register for GST if your business is expected to have a turnover of $75,000 or more per annum.

Lenders are looking for different types of confirmation of income, so the more details you can provide to show your income, the better.

Let’s look at these requirements in more detail:

  • Income: Depending on the lender, you might only have to provide an income declaration, while other lenders will require two years’ worth of financial statements. These could include your tax returns, BAS statements as well as profit and loss details. The more information you can provide, the better.
  • Assets: Because you won’t have access to the same documentation that a standard borrower would, lenders may want to see what types of equity and assets you have at your disposal. This could mean showing bank statements to confirm savings and other investments you might have.
  • Credit History: In some cases, you might have to provide the past three months worth of statements for your business credit cards, transaction accounts plus invoices issued and received. The lender will want to see what your cashflow is like and how you handle all of your financial commitments as a self-employed person.

To ensure you put your best foot forward, chatting with a qualified accountant is your best option. Chat to someone who is local and understands your business and can help you develop a strong case for applying for a self-employed home loan.

 

Compare Self Employed Home Loans

 

Case Study: Laura the Florist

 

Laura has had her florist shop for just over 3 years now. She has been diligently saving what she can in the hopes that she could afford to buy a small townhouse close to her shop.  

Laura decides to make an appointment with her bank manager, after all, she thinks, they have been great to her for her business stuff, surely they can help with this?

Unfortunately for Laura, her bank is unable to assist her. They don’t provide self-employed home loans. Laura is devastated. She decides to jump online and do a quick search. She finds ACF and calls a mortgage broker to discuss her options.

Within 2 days, she has provided everything that is required for a self-employed home loan and is able to start looking for the perfect dream home, close to her florist shop.

 

Five Tips to Find the Best Self-Employed Home Loan

 

  1. Find the best offer that will meet your specific needs. Relying on your current bank could see you being turned down or offered a sub-par home loan. Chat to a mortgage broker to get the best options without making multiple applications, which could result in negative ‘blimps’ on your credit record.
  2. Understand what your business ‘add backs’ are. These can help increase the income that a potential lender will use to help figure out what you can afford in a home loan. These could include; depreciation on assets, non-recurring expenses, non-cash expenses etc.
  3. Make sure you set up the right loan structure. If you don’t, you could end up paying more than you should. Chat to your mortgage broker to ensure that you’re getting the most in tax benefits and offset accounts.
  4. Be smart with your cashflow. If you pay your GST yearly, consider ‘holding’ these payments in an offset account to reduce your mortgage interest.
  5. Take into account your short-term future requirements. What plans do you have for the next 3-5 years? How do they impact your business and your potential home loan? Give this information to your mortgage broker so they can also take this into account.

 

Who Can Access a Self-Employed Home Loan?

 

You are classified as being self-employed if you’re unable to qualify for a standard home loan. This would make you eligible to apply for a self-employed home loan. You might also qualify for this type of loan if you are a self-funded investor, a company or trust, as the low documentation requirements reduce the amount of paperwork involved, making it an attractive option.

The key to accessing a low-doc home loan is that you must be able to provide proof of income. In some instances, this may mean providing two years’ worth of business statements.

If you have been operating for less than this amount of time, chatting to an ACF mortgage broker will allow you to explore further options for you.

 

Self-Employed Loans: Pros & Cons

 

When deciding if a self-employed home loan is the right choice for you, it helps to create a pros and cons checklist. We’ve done this for you, so consider these points carefully before making a decision to apply:

 

Pros: Cons:
Low Documentation: Often, a self-employed loan will require less documentation compared to a standard home loan. You just have to verify your business turnover. Limited Lenders: Not every bank or financial institution provides a self-employed home loan product, which means that you won’t be able to negotiate as much for better interest rates.
Quick Turnaround: Because there isn’t as much documentation to assess, your loan can be processed faster. More Deposit: Because of the lower LVR, you’ll be required to have a larger deposit than a full-doc borrower would have to provide. This can make getting into a house slower.
Convenient: Less paperwork means less work on your part, which means that you don’t have to waste hours pulling your application together. Higher Interest Rates: A lot of Australian lenders view a self-employed home loan as a higher risk, and because of this, you may see a higher interest rate being charged. You might be able to get a lower interest rate, but it will largely depend on the lender. You can convert to a full-doc loan further down the track as a way of reducing your interest rate too.
Switch to Full Doc: A lot of lenders will consider converting your loan to a standard loan after 2-3 years has passed. This means you’ll be able to access a better interest rate.

 

Figuring out what you need to access a self-employed home loan can seem daunting, especially if you’re a newly self-employed person. By understanding the requirements and what documentation you may be required to provide, you can now take the next step in securing a home loan.

 

Chat to the team at Australian Credit and Finance today so that you can understand what type of self-employed home loan is available to you.

Talk to our friendly team of Australian Credit and Finance mortgage experts who can help you navigate your way through the process of buying a home, investing in property or refinancing your home loan. Call us today on 1300 735 557 to discuss your self-employed home loan options.
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