There are many perks to being self employed – being your own boss, setting your own hours, and choosing who you want to work with. However, when it comes to obtaining a loan, self employed workers may find it more difficult to get a loan. This is because most banks have more complicated documentation requirements for self employed borrowers and stricter criteria that a borrower needs to meet.
Essentially, banks are looking to lend money to clients, which can clearly demonstrate they can afford the loan, and for some small business owners, this can be difficult. This can be due to the time you have been in business, the consistency of your income or simply because of a complicated business or tax structure that doesn’t meet the banks guidelines.
The key is often to have an expert guide you through a complicated area to help find the right lender and to make sure your application is presented in the best possible manner. There are also a few options you should be aware of when it comes to home loans for the self employed, which we’ll cover in our article below.
Home loans for the self employed
Self Employed Mortgage: How to prepare
Proving to a lender that you have a steady stream of income is crucial, which is why you’ll want to provide evidence of your business’s financial position. This may include:
- Last two years of company tax returns
- Last two years of other profit and loss statements
- Last two years of personal tax returns
A lender will want to see that the income is either consistent or growing and will generally want to take an average over these two years. Where the income has only recently increased or has been inconsistent or if you don’t have the required two years tax returns, you may not meet the guidelines of some lenders and may need an alternate solution.
Home loans for the self employed: The most common options
Low doc home loan
Low doc home loans are specially created for self employed workers who can’t provide the standard proof of income, such as two years tax returns. This can also be used if the two years tax returns may not reflect their current earnings due to the income increasing recently or due to inconsistent income. The term ‘low doc’ doesn’t necessarily equate to less evidence, but it may refer to providing different kinds of proof i.e. BAS Statements, Bank Statement or an accountants letter. Many banks don’t offer this option, so you will generally have to go to smaller lenders which specialise in these types of loan products.
Self employed home loan (non conforming loan)
A non conforming home loan is used for multiple circumstances, including self employed workers, those with a bad credit history or nonstandard income streams. A low doc loan is one type of non confirming loan product but these can also assist for other reasons such as credit issues, or a non standard property type. This kind of loan is typically offered by specialist lenders, as banks view it as too high risk. If you’ve been knocked back for a home loan, it’s worth getting in touch with a self employed mortgage broker to discuss which type of home loan is best for your circumstances.
Want to learn more about mortgage for self employed workers? Learn more about our self employed home loans or give us a call on 0404 403 066 to chat with our team today!
Self Employed Mortgage Tips:
Shop around for the best offer
It’s worth shopping around to see if you can get a better deal. This is not just about the cheapest rate but other factors such as who can offer you the highest loan amount or which lender has guidelines which are most suitable to your situation to make the process as quick and easy as possible. As this is a complicated area you may find it much easier to engage an experienced mortgage broker to do the research for you.
Boost your deposit
Naturally, the higher your deposit, the better position you’re in – but this is doubly so for a self employed business owner. Low doc loans for example are considered high risk so are generally only available with a 20% deposit. There are some exceptions, so it’s worth speaking to a broker in all instances, but if you have a larger deposit saved there are always more options.
Keep a high credit score
A high credit score will increase your chances of obtaining a loan, as it shows you’re financially responsible. This involves ensuring all debts are paid off, paying bills on time and fixing any credit report mistakes.
Get Advice relevant to your situation
If you’ve only been operating as a self employed business owner for less than a year, it’s highly unlikely you’ll be deemed a desirable candidate for a standard home loan product. It’s generally a case of a low doc or non-confiming loan product or waiting until you have been in business for longer. Either way its worth speaking to a mortgage broker about your options for a mortgage for self employed to understand the options available to your unique situation.
Interested to Learn More?
We hope our article on ‘mortgage for self employed workers’ has provided you with some good tips and tricks. At Oak Tree Finances, we offer home loans for the self employed, specifically designed to suit individuals who are unable to verify their income traditionally. If you’re ready to make the commitment to buying a house or want to learn more about tips and tricks for saving on mortgage interest payments, get in touch with an independent mortgage broker from Oak Tree Finances on 0404 403 066 or via our online form and we’ll be in touch shortly.