Applying for a home loan or any type of finance against property when you’re self-employed may have you jumping through more hoops. But there are ways you can help make it happen! Here are 4 tips to help you apply for a loan like a boss.
Being your own boss sure has its advantages: the flexibility of setting your own hours, building your own business to represent your values, having someone else fetch you coffee…
But when it comes to home loans, you may have more to prove than the average applicant.
Right or wrong, lenders may view you as a little riskier. That’s because, in their eyes, you may not have a steady paycheck to make those all-important repayments. You may be short term self-employed, or maybe your cash flow and profits are recovering after an abnormal period in your business.
But being self-employed doesn’t have to stop you from getting finance – including buying a home.
Planning ahead and knowing what lenders generally look for could give you an edge when it comes to the loan application success.
1. Get your finances in order
As a self-employed applicant, having rock-solid finances is important.
Even if your business is booming, most lenders will see you as more of a risk for defaulting.
That’s because self-employed incomes can be less consistent.
Lenders want to know that the likelihood of you making regular repayments is high. And to mitigate risk, loan options available to you may have a lower loan-to-value ratio (meaning you may need a higher deposit) and/or have a higher interest rate.
So, to prepare to apply, consider getting your finances in check by:
- Building up a healthy credit score
- Engaging with a lending specialist to find out what standard and specialist loan options are available to you, like Alternative Documentation (no financials) loans
- Lowering your living expenses by focusing on the essentials
- Saving up a healthy deposit (aka genuine savings) and a cash buffer
- Running your business on accounting software such as Xero, MYOB or Hnry so you can provide up-to-date and accurate profit and loss statements
2. Gather your documents
It’s important to keep your business and personal finance documents up to date, so you’ll be ready to rock and roll.
For verification of income, some many lenders require two years’ worth of lodged business and personal tax returns. There are lenders who will work with you and your accountant on option such as Alternative Documentation loans.
It’s a great idea to tell your accountant in advance that you’re planning on applying for a loan. That’s because some of the financial wizardry they apply to lower your tax bill might work against your application and lower your borrowing capacity.
Also, keep in mind that business owners who do lots of “cash jobs” can find it harder to obtain a loan because they have less income to show for their work.
On top of running your credit score, some lenders may want statements from loans and credit cards for proof you can make regular repayments.
They may also want to see verification of assets such as any property, savings and investments.
Some lenders may want to see the whole kit and kaboodle when applying for a loan. Some may need less.
Exactly what documents are required depends on the lender and the type of loan.
3. Choose your lender wisely
Not all lenders are comfortable providing self-employed loans for the reasons mentioned above.
And every time you apply for a home loan your credit history is “pinged”. The more this occurs, the more of a red flag this may pose to lenders.
So targeting lenders that have a track record of approving self-employed loans might be a wise move.
Having a reputable lending specialist on your side will be helpful here. Which brings us to our next point …
4. Get in touch with us today
Our team don’t just specialise in property loans, we also specialise in loans for self-employed people. This includes equity release for investment or business purposes, commercial lending, and solutions if you don’t have financials. Whether short or long term self-employed, likely we have a solution.
We can take you through many options, work out your borrowing capacity, and provide you with other tips that you can start working on now that may eventually help make your application more attractive to lenders.
Our home loans could be an option for you if you’re a small or large business owner. To find out more about our home loans for self-employed business owners, fill out your details below and we’ll be in touch.
Our lending specialists offer free advice and are available online, on the phone, or in person.
Refinance or buying. We make home loans simple.
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.