How to buy a home when you’re self-employed

When it comes to applying for a loan, self-employed borrowers may find it harder to supply verification documents to the bank compared to PAYG borrowers. Unfortunately, it isn’t as simple as pulling up a pay slip for those who are self-employed. However, this doesn’t mean that a self-employed borrower can’t purchase their dream home.

Some lenders offer products that don’t require a mountain of verification documents to be supplied. These are called low-doc loans and can help individuals such as those who are self-employed and are unable to hand over a payslip or tax return. Instead of providing the usual documentation, the lender may ask for BAS statements, bank statements which show your ability to service the loan, or a declaration from your accountant as well as financial records.

While this may seem like a great option, keep in mind that as per any home loan application, you still need to demonstrate that you can service the loan repayments. To prove your income outstrips your expenses, you will need to provide documentation that highlights this over a period of six to 12 months.

Here are some quick tips:

• Once you’ve started to think about applying for a home loan, you should speak with a finance broker as they will discuss how the structure of your business, as well as your income, will affect your borrowing capacity.
• Lower your debt: if you have unsecured debt, you should focus on paying it off and lowering any credit card limits as you reduce the debt. Lenders assess the total amount of credit available to you, not just the figure that you owe.
• Ensure you complete your tax returns when you should, and always pay your tax assessments on time.
• Save. Saving is key to serviceability. You will have to show the lender at least six months worth of low expenses and high savings. This information will highlight your ability to live within your means as well as being able to save at the same time.
• When applying for your home loan, go through a finance broker rather than a bank. A finance broker has access to a range of specialist lenders which base each assessment on the situation of the borrowers. Additionally, finance brokers can tailor a product to self-employed borrowers as they have a panel of lenders who offer a variety of loans. On the other hand, each bank has their own policy and only a few products which may not accommodate self-employed individuals.

Low-doc loans are an alternative option for those who are self-employed or contractors. Lenders will charge higher interest rates on these loans to offset the additional risk taken on. Other requirements for these loans may include additional conditions around lower loan-to-value ratios (LVR) of about 60%, or mortgage insurance provisions. Usually, the interest rate for a low doc loan is higher than a full doc loan.

If you’re self-employed and looking for finance for a property, we can help find the right fit for you. Give us a call to talk about your options.