Self-employed applicants have a slightly more challenging loan application process as they do not have pay slips from an employer and lenders like evidence of stable employment. Consequently, you will need to accurately calculate your income and provide enough evidence to support it prior to applying to a lender. Lenders will generally require evidence of income over 2 years.
Many lenders have higher obstacles for self-employed, because they are of the view that there is less income certainty as a few bad business months, can influence loan repayments.
Fortunately, small business in Australia continues to grow and we are seeing more and more businesses run by women, which is increasing the relevance of this group of people.
TIP What is important is that the more evidence you can provide a potential lender of your income the better. When you start thinking about purchasing a property, take the necessary steps to ensure your business income is easily identifiable and accounted for in your yearly tax returns.
Being Self-Employed, you will need the last 2 personal tax returns. Keep in mind that if the returns are significantly different, the lender will most likely apply the lower income of the two. If you fall into this predicament, ensure that you provide any supporting information that offers factual information explaining the difference between the year’s income.
Individuals that have been self-employed for less than 1 year, will find it even more difficult to get a loan approved. Generally, major lenders are unlikely to offer you a home if you have worked for yourself for less than one year. Some specialist lenders may accept your employment wage prior to you starting your business, on the basis that if your business fails, you still have an option to return to your previous job. Pay slips from previous employers will be advantageous in this situation.
Self-Employed people with a business that is younger than 12 months are going to find it challenging to get a loan approved for a number of reasons. Small businesses encounter their most difficult time during the first 3 to 5 years of operation, which is why, lenders are incredibly cautious. If you are in this situation, then meet with one of the Brisbane Home Loans Mortgage Specialists to be assessed. If you do not qualify, the Specialist, will identify some key objectives for you and put you on the right path for a loan approval in the future.
Some lenders offer Self-employed individuals what is commonly known as a “Low Doc Home Loan” as an alternative. For these loans, the lender will accept a signed income declaration instead of tax returns, as the basis to assess your loan application. Lenders offering Low Doc Loans generally will not lend more than 60% of the property value. Lenders that offer more than 60% will generally be requiring Lenders Mortgage Insurance (LMI). Naturally, Low Doc Home Loans are a higher rate but can be an option for individuals that lack the documentation normally associated with an employer.