Being self-employed comes with its own unique set of challenges, not only in terms of how you conduct day-to-day business, but also when applying for a home loan. Lenders will use a range of criteria to assess your application, and will also ask to see evidence that your income will repay the loan..
As the Reserve Bank of Australia (RBA) explains, they need to exercise this extra caution. A report from the central bank showed that self-employed mortgage customers are around six percentage points more likely to miss a mortgage payment than those on a guaranteed salary.
Here are some of the major considerations that you’ll need to take into account when considering a mortgage for buying or investing.
1. You’ll need specific documentation
Each self-employed home loan provider will have different criteria you’ll need to meet when making an application. However, generally speaking you will be asked to show evidence of your Business Activity Statements for the past 12 months, each of which must be verified by the Australian Tax Office.
Further to this, you’ll need to show that your income has been GST registered for at least 12 months, as well as your Australian Business Number and/or Certificate of Incorporation. Each lender has specific guidelines on the information they will ask to see.
2. Making yourself an attractive lending prospect
As with any home loan, a lender will take a look at your finances and determine whether you’re a safe bet to lend to. Put yourself in their shoes – are you showing yourself in the best light?
The good news for borrowers at the moment is that lending to owner occupiers is on the rise. And just because you are self employed doesn’t mean that bank finance is not available.
3. Be aware of any restrictions
Home loans for the self-employed are similar to many other mortgage products in that they come with a variety of different restrictions. For example, you might not be able to switch to another product within a given period, or there could be a cap on the repayments you’re allowed to make.
4. What mortgage rates are available?
Provided you can supply the documentation that home loan lenders want to see, you should find there are various favourable mortgage rates available. The RBA has maintained the historically low cash rate of 2 per cent since May, which has brought some competitive products to the market.
As with any big purchase, make sure you do your research before deciding which home loan is most suited to your needs.
I have been self employed for the majority of my working life, but it hasn’t stopped me personally buying and selling over 20 houses or helping other self employed clients with their finance. Contact me on 0438 211 211