If you’re self-employed or own a small business, the good news is you can still get a home loan. There are just a few extra steps and requirements you will need to go through prior to a lenders approval.
The most important requirement is your ability to confirm your income. So whether you are a start-up, a freelancer or contractor, or have been running your own small business for years – you just need to be prepared, and you need to know your numbers
- Fully Income Verified Loans
- Low-Doc Loans
- Line of Credit
- Residential or Investment
When borrowing money as a self-employed person you will be assessed as either a fully verified borrower or a low-doc borrower.
As you don’t have the standard PAYG payslips to verify your income to a lender, you need to have you income verified differently.
If fully verified you will need to provide:
- The last two individual tax returns and the last two company or business returns
If you are unable to provide these returns the lender may assess your eligibility for a low-doc loan. If this is the case most lenders will require you to provide a number of documents and details to self-certify your income. These include:
- Your registered business name and ABN
- Business Activity Statements (BAS). You may need to provide up to twelve months of statements so that a lender can review your turnover and determine if you can afford the repayments on a loan.
- A letter from your Accountant confirming your income.
- Bank Statements from your primary business account for the past six months.
- A self-signed income declaration form.
There are two key loan types you should know about as a self-employed borrower. For other loan types please chat with your broker.
Low-Documentation or Low-Doc loans are for people who cannot provide the usual paperwork that is required to get a home loan. This could include tax returns or financial statements, and typically is used by self-employed borrowers or investors without a regular PAYG income.
Line of Credit
A line of credit mortgage allows you to draw on funds as you need them up to an approved credit limit. The difference with this type of loan is that when you repay the line of credit, the funds you have paid become available to redraw again.
Ask a Broker
Getting a home loan when you are self-employed is more complex. As such, it’s sometimes easier to chat through your scenario with a broker first and then get all your details together. Your broker knows what lenders require and can help you navigate through the process.
So, if you want to chat, you can give us a call on 1300 135 456, use web chat or fill in our contact form and we’ll give you a call when it’s convenient to you.
To prepare for your conversation with a broker, here is a list of questions you should ask.
- What proof of income will a lender need?
- Is a low-doc home loan my only option?
- How much deposit will I need?
- What is the maximum Loan-to-Value Ratio (LVR) I can borrow?
- Do I need to pay Lenders Mortgage Insurance (LMI)?
- What lenders offer low-doc home loans?
- Can I refinance a low-doc loan?
- If my partner is a PAYG employee do I still need a low-doc loan?
- Are there any limitations I need to be aware of?
- Can I buy an investment property while self-employed?
- Will I need to pay a higher interest rate?
- How long do I need to have had my ABN for?
- Can I move to a full-doc loan later?
There are also some questions you should ask yourself. This will help you provide information to your broker that can help determine what the right loan and lender is for you.
- Will you need a line of credit to cover any home or business needs?
- Have you had consistent income over the last two years?
- Have you been reinvesting profits back into your business?
- Are there expenses in your business that can be itemised as one-off?
- Are you looking to buy a property to live in, or as an investment?
- How much taxable income do you have?
Loan-to-Value Ratio (LVR) – The LVR is the amount you are borrowing represented as a percentage of the value of the property being used as security for the loan. Typically, if you are self-employed, the LVR on a low-doc loan will be lower than a standard loan – this however differs by lender and your individual circumstance, so chat to your broker to work out what we can do for you.
We look forward to discussing your home loan needs soon.
We look forward to updating you with home loan news.