Securing a home loan can be difficult for many people, and this is especially true for the self-employed. In the wake of the Global Financial Crisis, banks have tightened up their lending criteria for self-employed people, and they are bound by legal obligations to ensure responsible lending and that the applicants are well situated to meet their repayments. While it may be difficult to be approved for a home loan when you're self-employed, it is achievable with the right planning and advice.
Get your finances in order
Most banks and building societies will require at least two years worth of personal tax returns to process a loan application. These tax returns will need to show that your taxable income is sufficient to service the home loan repayments.
When you're self-employed, it's common practice to get your accountant to work towards minimising the amount of tax you need to pay. However, this also means that your taxable income can be too low for a bank to see you as a safe bet. It's worth paying a higher amount of tax for a couple of financial year cycles to increase your net income and therefore, your lending credentials.
Have a hefty deposit
Since the GFC, many financial institutions have pretty much eradicated 100% capital loans and require a deposit of at least 5% of the purchase price of a home. Many banks and building societies require a higher percentage from self-employed applicants and this amount varies depending on the financial institution you're attempting to loan from.
The more you can save for your deposit the better. Not only does will it meet the financial institution's lending criteria, it will also show them you have an excellent history of budgeting and saving. It will also reduce the amount of capital you need to borrow, saving you many thousands of dollars in interest fees over the duration of the loan.
Use a mortgage broker
Using a mortgage broker is a hassle-free way to secure a home loan. They are industry professionals who are fluent in the language of financial institutions. They will sit down with you and work out your financial position, your borrowing power, and which banks or building societies will be most likely to want to do business with you.
Mortgage brokers take care of all the often confusing and headache-inducing tasks, such as filling in applications, corresponding with financial institutions, and gathering together the necessary paperwork. They can also advise you which government grants, such as the First Homeowners Grant, you will be entitled to and help you to apply for them.
Owning your own home is a dream for many Australians. If you're self-employed, it's possible to make your dream a reality if you plan accordingly and enlist the right help.