Applying for a home loan when you are self-employed can be daunting, particularly when trying to understand the different requirements of each lender. As lenders often see self-employed people as higher risk in terms of home loans, the applicants often feel as if they have to jump through a number of extra hoops in order to get what they are after.
It’s important to remember, however, that the lender is looking to ascertain the same thing as every other application, whether employed or self-employed; the amount you can borrow, whether you have an appropriate deposit and whether you can demonstrate reliable income to manage your home loan repayments. That being the case, here’s your a guide of what to expect when preparing your home loan application as a self-employed person:
Applying for a home loan when you have been self-employed for more than 2 years:
As opposed to an employee who will need to provide a number of recent payslips, lenders will want to see your last two years of personal and business tax returns, including notice of assessments. This is because they will assess your application based on your taxable income, rather than your gross turnover. Some lenders may credit your income with add-backs – expenses that are not part of your regular business – including things like depreciation on taxable assets, additional super fund contributions, interest deducted on business/personal loans etc.
Each lender will have a different way of assessing and estimating your future income in order to determine your eligibility and how much you can borrow. They may base it off your most recent tax return, or look at your entire self-employment history. As a result, it is not unusual to have to provide additional documentation such as cash flow projections. This is where working with an experienced broker can take the hassle and mystery out of understanding different lenders and their requirements.
Applying for a home loan when you have been self-employed for less than 2 years:
Although this does limit your options, there are some lenders who will look at your history in your chosen industry. For example, if you are a plumber who has been working for themselves for less than 2 years, the lender will look to see that you have experience working as a plumber beforehand. You will most likely be required to provide old payslips in order for the lender to assess. Based off these payslips, in the case that your self-employment is unsuccessful, the lender would make the assumption you would be able to return to the workforce in a similar job at a similar salary.
Is a low doc home loan an option?
Low doc loans can be useful for a variety of reasons, including for those with businesses less than two years old. They are, however, becoming less common due to lending tightening, often coming at a much higher interest rate and with a larger deposit required. Although it is low documentation, lenders will still be looking for key criteria for a low doc home loan candidate including (but not limited to): an ABN, a Business Activity Statement (BAS) for the last 12 months, a clean credit history and to have been self-employed for at least one year.
What can I do next?
Getting approval for a home loan when you are self-employed is certainly possible, however lending criteria will vary from lender to lender. A home loan broker can help guide you to appropriate lenders for the self-employed and support you throughout the process. Apply here or call 1300 898 765 to chat to a specialist today.
The information in this article is of a generalised nature, it is important that you obtain individual financial and tax advice for your circumstances.