Getting a Home Loan When You are Self Employed
Running your own business can be one of the most rewarding things you do. It can also be up there with the most challenging, particularly when it comes to getting a home loan. Lenders tend to have different requirements for self-employed customers than they do for those who are on a salary. However, while your situation may not fit a cookie cutter approach, there are still certainly many options.
So what are some of the variables affecting self-employed borrowers?
Length of Employment:
The length of time you have been self-employed is a major factor in the lending options you have. Generally speaking, a minimum of two years trading is preferred by most lenders.
If you have only been trading for a short time you still have options, although they may be more restricted. There is a range of lenders who are happy to consider shorter term self-employment.
Generally speaking the lender will require a full set of Income Tax Returns and the accompanying Financial Statements. Sometimes, however, these are not available. It may be as simple as the information has not been prepared and lodged with the tax office at the time the client is requiring finance. There are some lenders who will consider other forms of income verification, such as BAS statements, an accountant declaration, and business bank account statements.
How they treat the income varies from lender to lender. For example, they may take the average of the two most recent years, or if there is a marked increase in the most recent year, they may only use a percentage of this increase. Then again there are some lenders who will look at the most recent year and be happy to use that figure.
Sometimes the nature of self-employment means irregular income. This can be as a result of such things as customers paying late, or fluctuations in the business cycle. These can cause cashflow issues for your business, meaning your own repayment capacity could be affected. It may mean some late payments on your current financial commitments or other more serious types of credit impairment, making any future borrowing difficult. There are, however, some lenders who are open to non-conforming lending and are happy to consider each situation on its own merits.
A conversation with your mortgage broker can help you navigate your options as a self-employed borrower. There are probably more than you think!