If you’re planning for getting a home loan when self-employed, then you may be feeling a little nervous about your mortgage application. And this is understandable. Lenders have a reputation for being extra cautious when it comes to approving home loans for self-employed borrowers. In fact, a 2017 report found that self-employed borrowers account for over 25% of rejected mortgage applications (even though only 16% of Australian’s are self-employed).
But this doesn’t mean that you’re destined to renting for the rest of your self-employed days.
There are several things that you can do to significantly improve your chances of obtaining a self-employed home loan. These include:
1. Working to improve your credit rating
Sometimes, it’s the little things that can trip us over. A gas bill accidentally paid a week or two late and overlooked phone bill or a maxed-out credit card may not seem like a big deal, but these things can do damage to your credit rating. So, start working to improve your credit rating before you apply for a home loan. Make it a goal to pay all your bills on time and start reducing your credit card debt. Paying a credit card off in full each month will reflect well on your credit rating, as it shows you’re in control of your finances and are capable of managing debt repayments.
2. Planning when to apply for a self employed Home Loan
You may have heard that it’s possible to get a home loan when you’ve only been self-employed for 12 months. And this is true, some lenders will approve applications from self-employed borrowers with only one years’ worth of financial statements. But applying for a self-employed home loan for less than two years will likely reduce the number of home loan products that you’ll be able to choose from. It may also result in your interest rate is higher. If possible, waiting until you’ve been self-employed for at least two years will give you the best options to choose from when it comes to applying for a home loan.
3. Staying up to date with your paperwork
Most lenders will want to see at least two years’ worth of financials that have been lodged with the Australian Tax Office (ATO). Keeping your paperwork up to date and lodging tax returns on time will help to ensure there are no unnecessary delays when it comes time to submit your mortgage application. Lenders also prefer it when your financial statements have been prepared by an accountant, so keep this in mind when deciding how to manage your books.
4. Understanding add-backs
Your business may have a range of expenses that can be listed on your application as add-backs. Business add-backs are expenses that can be added back to increase the overall profit of a business. These could include one-off expenses, interest on a loan that has now been repaid, non-cash expenses, additional super contributions, depreciation or vehicle allowances. Understanding and correctly identifying add-backs can significantly affect your borrowing potential, so it’s very important that these details are correct.
5. Getting expert advice from an impartial mortgage broker
When it comes to applying for a self-employed home loan, the best thing you can do is talk to an experienced mortgage broker. A mortgage broker will be able to offer expert advice that is tailored to your situation. They’ll be able to compare mortgage products from the widest range of lenders and offer industry insights into which lenders are favorable towards self-employed borrowers.
A mortgage broker who specializes in helping self-employed home loan borrowers will also be able to make sure your application is 100% accurate, includes all the relevant add-backs, and is a true reflection of your ability to repay a home loan.
With a client base that is 65% self-employed, we’re dedicated to helping self-employed borrowers achieve their goal of owning a home. For tailored advice from the “self-employed specialist,” contact Phil and the team at Professional Lending Solutions.