Self employed? What you need to know about taking out a mortgage
There are lots of great things about working for yourself. You get to start work and knock off when you decide. You are your own boss! But how does being self-employed affect you getting a mortgage?
Here, we help you navigate the process.
Get your paperwork in order
Employees generally need to show the last two or three payslips and a recent income statement to prove their income. For self-employed people, it’s a little trickier. Most lenders will need to see tax returns or business activity statements (BAS) statements from the last two years, in order to adequately assess your income. You may need to provide evidence of GST registration, and your ABN or Certificate of Incorporation. You may also need to provide recent statements for your business transaction account.
Lenders are looking for a steady flow of income. If you are self-employed, costs may fluctuate year to year, especially if you have startup costs. If there is a big discrepancy between your tax returns, you might need to substantiate the difference by providing additional evidence. Talk to your broker and accountant about which documents you need to provide, to improve your chances of securing your mortgage.
It’s worthwhile using an accredited accountant to help track your income and expenses and make sure everything is airtight. If there are question marks about your income, it might work against you when you are trying to take out a mortgage.
Low doc mortgage
Some lenders go out of their way to attract self-employed people looking to take out a mortgage. Some lenders only ask for one tax return. Some also offer low doc mortgages, which means you need less paperwork. Be aware, though, that low doc mortgages often incur higher interest, fees, and lender mortgage insurance (LMI). Low doc mortgages generally loan a maximum of 80 percent, so you will need to make sure you have a good deposit. You will still need to provide BAS, GST registration, and your ABN.
Have a great credit rating
Keeping your credit card debts low, and your repayments swift will work in your favour when lenders assess your eligibility for a mortgage. Do all you can to prove your integrity to the lender, to better your chances for eligibility.