What Self-Employed Borrowers Need to Know?
Being self-employed has many benefits - you're your own boss, can set your own schedule, and keep more of the profits from your hard work. However, it can also create some hurdles when it comes to getting a home loan or investment property loan. Banks and lenders often view self-employed borrowers as higher risk since their income can fluctuate more than traditional salaried employees.
If you're self-employed and looking to purchase a home or investment property in Australia,
there are some important things you need to know to improve your chances of getting approved for a competitive loan. Here are the key factors lenders consider for the self-employed:
Documentation holds the key.
Since you don't receive steady paychecks with year-end tax summaries, you'll need other documents to prove your income. Lenders will typically want to see your personal and business tax returns for the last 2 years to get an idea of what you earn annually on average. They'll use those figures to calculate what size loan you can afford.
You should also be prepared to provide profit and loss statements, balance sheets, business activity statements, tax assessment notices, and potentially even quarterly income figures depending on the lender. The more income documentation you can provide, the better your chances of approval.
Stable Working History
Just like salaried borrowers, lenders want to see that you have a stable history in your line of work or industry. They'll be looking at how long you've been self-employed, as shorter time periods indicate a higher risk that your income could drop off.
Ideally, you'll want to have at least 2 years of self-employment under your belt, with projections of continued work and revenue into the future. If your business is less than 2 years old, you'll likely need to show significant cash reserves as additional security.
Low Debt
In addition to cash reserves, lenders also evaluate your existing debt load compared to your income. They'll look at things like credit card balances, other loan payments, taxes owed, and any other periodic debts you pay.
Good Credit Score
Your credit score and overall credit history play a major role, just like any other loan applicant. Lenders want to see that you've been responsible with payments and have a track record of minimal delinquencies, defaults, etc. Make sure to check your credit report for any errors and have statements ready to explain any blemishes on your credit history. The higher your credit score, the better interest rates and loan terms you'll likely qualify for.
How We Can Assist
At Investors Mortgage, we specialize in aiding self-employed borrowers in securing home loans tailored to their unique circumstances. Our team is well versed with the intricacies of self-employment and can shepherd you through the entire loan process, from application to approval.
Contact us today to discuss your situation and get an evaluation from our experienced loan specialists.
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