How can self-employed borrowers prepare themselves financially to give themselves the best chance of successfully obtaining a home loan? Here are a few tips.
Blogger: Gavin Smith, director & general manager, State Custodians
Lending to self-employed borrowers can often be complex and requires extensive knowledge of a lender’s requirements.
Full doc home loan
Some self-employed borrowers assume that because they are self-employed, they have to apply for a ‘low doc’ home loan, with a higher interest rate and alternative documentation requirements. However, depending on your circumstances, you may not necessarily have to. To qualify for a prime loan with the cheapest rates, most lenders will ask you to provide two years lodged tax returns and financial statements. This includes your personal tax returns, company, partnership or trust returns and as well as tax assessment notices.
Be careful with paperwork
As a self-employed borrower, you will most likely have to provide more information than the average borrower. This may include BAS statements, tax returns, bank statements or even a declaration from your accountant. If you are able to be quick when providing these items, it will help speed up the application process.
Lodge your tax returns on time
Lenders want to see your most recent trading history. By keeping your tax returns up to date, you are able to show the lender your most recent income history whenever you are ready to apply for a home loan. It will also improve your chances of being able to apply for a full doc loan, which has more competitive rates, compared to other self-employed home loan options.
Be honest with lenders
It is important to have full disclosure with your lender. They are required to verify the information you give them and if you have not disclosed the full story it will not only slow down the process, but may affect your ability to borrow.
Improve your serviceability
Just like all borrowers, try to reduce personal credit cards and personal loans. Lenders take into consideration the limit as through it was fully drawn, so keep credit card limits to what you actually need. The less financial commitments you have, the better chance you will have at borrowing what you need.
Build a good history
Home loan interest rates are generally a lot less than interest rate on overdrafts and other business loans. If you already have a home loan and equity in your home, then you have the option of refinancing to consolidate debt, releasing cash for your business or change lenders to get a cheaper interest rate. When you go through this process, lenders want to see the past six months loan statements. If these show regular repayment history and even regular additional repayments, this will reflect positively on your application. If you are looking to consolidate business debt, ensure that you can separate this amount from the rest of your loan. You should be looking for a home loan that has loan splits or portions to keep this separate for tax purposes.
Chat to a lender who understands self-employed borrowers
If you are looking at getting a home loan, look around at lenders who have a range of loans for self-employed borrowers. You can chat to them about your business income what income evidence you are going to be able to provide. They can also advise you on your options.
About the Blogger
Gavin Smith is Director & General Manager of State Custodians and has over 20 years’ experience in leadership roles within the banking services sector. An expert in personal finance, securitised lending and the mortgage industry, Gavin has a Post Graduate Degree in Management from the Australian Graduate School of Management (UNSW), including several mortgage and securitisation qualifications.