Self-employed borrowers come up against the challenge of not being able to simply present payslips and tax returns to back up their loan applications. But this doesn’t have to stop you buying your dream home.
Many lenders offer loans for self-employed borrowers who can’t hand over payslips and employment records. This means that, rather than the usual documentation, you prove your ability to service a loan using bank statements, declarations from your accountant and financial records. This is called a Low-doc loan.
Of course, as with any mortgage application, you must still prove that your income outweighs your expenditure and that you can service the loan. Getting this right on your own can be tricky as there is a lot more to it than just writing down your financial details on an application.
Here Are Some Quick Tips:
- Reduce Debt – pay down credit cards and personal loans, and be sure to lower the credit limits as they are paid down, as lenders assess the total credit available to you as a potential debt level, not just the amount you owe;
- Cancel credit cards that you don’t need (this will affect credit scoring);
- Speak to a broker about how the structure of your business and your taxable income will impact your ability to borrow;
- Do your taxes when you should, and always pay your tax assessments on time;
- Save – saving a deposit is obviously important, and showing your ability to live within your means while saving is too. This is key to serviceability – you want to show at least a six-month history of high income and low expenses; and
- Go to a broker, rather than a bank. Brokers have access to specialist lenders that assess applications on a case-by-case basis and tailor their products to self-employed borrowers and contractors, while bank lenders do not.
Loans to the self-employed do differ from standard loans in a few ways, apart from the application process. Lenders offset the extra risk they are taking when lending to a self-employed borrower or contractor by charging slightly higher interest rates and placing some extra rules on loan-to-value ratios (LVR) and insurance requirements.
Generally, you can expect an interest rate for such a loan to be one to two percentage points higher than for a full-documentation loan.
Most lenders will also insist on an LVR of no more than 80 per cent – meaning that under no circumstances will they lend more than 80 per cent of the property value, as assessed by the lender.
In cases where the loan amount is for more than 60 per cent of the property’s value, some lenders also require self-employed borrowers to pay for lenders’ mortgage insurance.
To get the process started, contact us today.