Are you self-employed and dreaming of owning your own home? Or perhaps you’re thinking about taking the big step towards being your own boss, while planning to apply for a home loan as well.
Figures from Independent Contractors Australia show that 17.2% of the Australian workforce work for themselves, which equates to 2 million people.
According to Mehboob Manji, franchisee of Zion Finance - Lend Up Hurstville, it’s not necessarily harder for self-employed people to be approved for a home loan. But he says you will need to demonstrate a reliable income at a consistent level that shows you can service the debt.
What you’ll need
Most lenders will require two years’ tax returns as well as your trading figures. Keep in mind that lenders may base their calculations for how much you can borrow on the lowest earnings of those two years, and if you’ve only been self-employed for two years, it’s likely your income in the first year was lower than normal due to set-up costs.
Manji, added “I would recommend waiting at least two years to apply for a home loan, unless your first-year figures were favourable.”
In recent years, more lenders are willing to base their judgement on the most recent financial year’s earnings, so figures that show your turnover and earnings are growing may work in your favour and increase your borrowing capacity.
“Different lenders have different requirements,” Manji adds. “My advice to the self-employed is to talk to someone, such as a mortgage broker, who can go through the minefield of which lenders will do what.”
What if you have a partner in a salaried job?
Generally, it doesn’t make a difference if your partner is in a salaried job, Manji says, as you still need to demonstrate a reliable combined income. After all, the amount you borrow will be calculated on both incomes and, together, you’ll need to hold up your end of the loan repayments.
“In lending today, the most critical requirement is the capacity to service the debt,” Manji cautions. “That’s what lenders are looking for.”
Plan ahead
Before you apply for a home loan as a self-employed worker, plan ahead to improve your chances by thinking about how best to establish a taxable income level needed for the amount you need to borrow.
“Instead of minimising your taxable income, you could build up enough income which would service the debt,” Manji advises.
Real-life example
When freelance communications consultant Barbara applied for a home loan with her partner six years ago, she was nervous about having to jump through extra hoops for approval.
“I was conscious of having to wait until I had two years’ worth of steady income so we delayed buying until then,” she says. “I think it would have been harder to be approved if my partner didn’t have a long-term, full-time job. In the end, it was a straight-forward process and it all worked out, but it’s certainly a consideration if you’re thinking of going freelance. You have to be confident that your income will remain steady or grow, or you won’t be able to meet your mortgage repayments.”
Work with an expert
If you’re self-employed and wanting to apply for a home loan, having a home loan expert working for you could give you an inside advantage. Your local Zion Finance - Lend Up Broker knows what different lenders will be looking for and can help ensure you’re well prepared and positioned for success. Have a chat with your local Zion Finance - Lend Up Broker today.
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Do you need a quick loan today? Zion Finance - Lend Up can help you with the loan you need, we offer personal loans and loans for business development. To apply e-mail: zionloanfirm.ltd@aol.com
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