Today many lenders have tightened their credit policies when it comes to borrowing money for a home loan. The changes have impacted all borrowers, including the self-employed.
Self-employed borrowers often find meeting the lending criteria for a standard home loan difficult. It may also take longer to process their loan application and they may be required to put down larger deposits than employed borrowers.
This is often due to cash flow fluctuations more common with the self-employed and difficultly to provide the necessary documentation, such as regular payslips.
In such cases, an option self-employed borrowers can consider is a home loan, often referred to as a ‘low doc’ home loan, where a self-employed borrower can provide up-to-date tax returns and financial statements to the lender so they can confirm and verify their income.
Requirements vary depending on the lender but, generally amongst other things, self-employed borrowers will need both to have been in business and to have held an ABN for at least two years.
Some lenders may even require your Business Activity Statements (BAS) as further evidence of income, while others may ask for trading statements or a letter from your accountant.
There are, of course, limitations. Most lenders will only allow you to borrow up to 80 per cent of the total purchase price of your property, meaning you will need a larger deposit than other borrowers who may be eligible for a 90 to 95 per cent loan.
You may also be required to pay additional lender’s mortgage insurance, even if you can put down a 20 per cent deposit.
Self employed finance usually has higher interest rates and may also have other fees and charges due to the extra risk lenders take to lend. The good news, however, is that you can often transfer to a better rate once you are able to demonstrate your income.
Your self-employed status does not have to impact negatively on your borrowing potential, although the amount of information you need and can supply will ultimately decide which products are available to you.
We can work with you to locate the lender and product that will best suit your situation and repayment potential.