There are lots of great things about working for yourself. You are your own boss! You get to start work and knock off when you decide. But how does being self-employed affect you getting a mortgage?
Here’s just a few things to consider.
Proof of Income
As an employee you generally only need to show the last two or three payslips and a recent payment summary to prove your income when applying for a loan. If you’re self-employed, it’s a little trickier. Most lenders will want proof of your business income by way tax returns for the last two financial years together with your ATO Notice of Assessment and business financials for the same period. In particular circumstances there are some lenders who will only ask for one year’s documents but, in most cases, you still need to have your ABN registered for at least two years.
Lenders are looking for a steady flow of income. If you are self-employed, income and expenditure may fluctuate year to year. If there is a substantial difference between your two years tax returns, you might need to substantiate the variance by providing additional evidence. Your broker and accountant can help you provide the relavent information to accompany your application to the lender to give you the best chance of having your loan approved.
Keep a good credit rating
Keep your credit cards and other loan repayments up to date at all times. This 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 of approval. They want to feel comfortable that you have the committment to repay your new loan on time every month.
Low doc mortgage
Some lenders offer low doc mortgages, which means you need less documentation. You will still need to provide BAS and/or your business trading account statements plus your ABN and GST registration dates will be a consideration. Low doc mortgages often incur higher interest rates and higher fees and you will need to have a bigger deposit or more equity to contribute.
Be prepared in advance
There’s a number of things you can do to prepare well ahead of the time when you want to apply for a home loan. Lenders are increasingly under pressure, from their regulators, to adhere to responsible lending practices and therefore need to satisfy themselves that you can afford the loan under their assessment criteria.
If you want any further information on how to get prepared I’d be happy to help.