As a business owner or self-employed entrepreneur, applying for a home loan can be difficult. Too many rejections can also hurt your credit score, which in turn can hurt your business. Instead of applying individually at each bank, talking to an experienced mortgage broker can help you get started and even find you the perfect home loan for your financial situation.
At Melbourne Finance, we have helped many employers with their home loans, and we understand that you are not like regular salaried employees and require alternatives to typical documentation. Here’s what you need to know.
Prepare the Right Documents
Applying for a home loan is all about documentation. Typically when you apply to lenders, they ask for employment details, savings history and outstanding loans. Being self-employed, you will also need to discuss your business, assets, and liabilities to ensure it is the right financial move. If you have been in business for more than two years, lenders require the date of your ABN and GST registration, at least two years of personal and company tax returns and two years of financial statements, including your balance sheets and profit and loss statements.
These documents help lenders determine your business’s financial position, growth and volatility and how that will affect your home loan. In particular, we use your company’s tax returns as a guideline to how much you earn and the costs of the business.
Hot Tips to Buying as a Self Employer
If you are buying a property as a self-employed individual, you can do a few things that will make purchasing a property and applying for a home loan that much easier.
Hot Tip 1. Always have the most recent documentation
Make sure that your documentation has the most recent quarter’s business activity statements, cash flow report, and balance sheet when you submit your application. We recommend every time you complete one of your business forms, you save a copy into a separate folder titled Home Loan Forms. When completing the forms, it is also good to ensure they are free of errors as out-of-date files or spelling errors can hold up your application.
Hot Tip 2. Have a bigger deposit than you need.
If you can, as a business owner, have a deposit that is greater than 20%. As someone who is self-employed, the less you look like a risk the better. When there are risks involved, there are generally additional fees, and the application may take longer to process.
Hot Tip 3. Maintain a high credit score
Credit scores can be the make or break to securing a home loan. As someone who is self-employed, having a high credit score makes you a better home loan candidate.
Hot Tip 4. Show off your experience
Lenders value business owners who can demonstrate their experience and ability to uphold qualifications within their area of expertise. It shows commitment, good workmanship, and that people are willing to invest in your products and services. If you are recently self-employed and looking for a home loan, you are considered a safer home loan candidate if you are moving from being an employee to an employer within the same industry.
Only Recently Self-Employed? Low Doc Home Loans Available
If you have only become self-employed over the last two years, there are options available that do not require as much documentation. Low documentation loans are specifically designed for people who are unable to provide traditional proof of income. These options do not mean that there is less evidence provided in your home loan application, just different evidence that is not as extensive.
One of the types of evidence you may be required to provide is a self-certification letter signed by yourself and your business lender or account that states your income is sufficient to meet the required repayments of a mortgage. To support this letter, some lenders may still ask for bank statements and evidence you have been in the same industry for at least 12 months.
Often low doc loans do come at a higher interest rate, but if you continue to be successful in your chosen profession, you may be able to negotiate this rate to be lower at a later date.
Prepare for your home loan
Applying for a home loan can be an extensive process, and if you are doing it all by yourself, you could be making mistakes you don’t know about. At Melbourne Finance, we have years of experience working with lenders and business owners to secure the best home loan possible. We take pride in getting to know you, your business and your financial goals throughout this home loan process. So if you are looking for a home loan and are self-employed, fill out the enquiry form below for a free, confidential chat.