When you’re self-employed, obtaining finance for loans – home loans in particular – can sometimes be more challenging. Lenders are often hesitant to offer self-employed home loans for those who have been self-employed for less than two years due to the lack of solid financial statements.
So, what does this mean if you have been self-employed for less than two years and want to purchase a home? Let’s take a look.
How can I get a home loan if I’ve been self-employed for less than two years?
If you’re looking for a self-employed home loan, you’ve come to the right place! At Inovayt, our team of expert brokers heavily specialise in self-employed home loans. We’ve worked with countless small business owners with less than two years of experience and have helped them make their home-owning dreams a reality.
Here are some ways we can help.
Full doc home loan
The most ideal situation for lenders is a full doc loan. Often, self-employed people need to be working for longer than two years to use this type of documentation. However, our brokers are trained to work with lenders and assist those that have been running their businesses for less than the ideal period of time. We look into factors such as your previous work history and experience to present a compelling full-doc application to lenders to secure.
Low-doc home loans
A low-doc loan is beneficial to the borrower as it allows you to apply for a loan without supplying recent tax returns or financial statements. These loans require alternative income verification forms, such as an accountant’s declaration and Business Activity Statements (BAS). It is important to note that this loan type does not involve providing less evidence of income, as it’s about providing alternative sources to prove your income.
As these loans have a reduced income verification by the lender, these products are considered a higher risk – meaning that they attract higher interest rates, a larger deposit and lender’s mortgage insurance (LMI).
How do lenders view self-employed home loan applicants?
If you have a job with an employer, a lender will only require your personal financial position to make a lending decision. When you work for yourself, your lender will also consider your business’ financial position. Unfortunately, for self-employed people, this often puts them at a disadvantage. Banks and lenders often view those that are self-employed as ‘unpredictable’ and consider you at a higher risk of missing repayments.
Proving that you’re a safe investment for lenders is our broker’s main priority as self-employed home loan specialists.
What do those looking for self-employed home loans that have been in business for less than two years need to do differently when applying for a home loan?
When applying for a home loan, there are some standard documents that you’ll need to submit. These include your:
- employment details
- savings history
- outstanding loans (e.g., car or personal loans, prior home loans, credit cards, etc.)
- existing assets (e.g., real estate, motor vehicles, investments, superannuation).
Suppose you’re self-employed and want to apply for a home loan. In that case, you also need to provide evidence of your business’s financial position and any other documents requested by your broker – especially if you’ve been self-employed for less than two years.
How much deposit will I need for my self-employed home loan?
As someone self-employed who is looking for a home loan, here are some rough figures of what you may be required to pay for a deposit. It’s essential you speak to an Inovayt mortgage broker about what deposit you need to supply, as this is an estimate only. The below gives estimates of your deposit required based on the time since your ABN registration.
- 0–6 months: Unfortunately, you will likely be ineligible. However, there is an exception in some exclusive cases. If you went from PAYG to ABN doing the same role and have a 20 per cent deposit, our Inovayt brokers may be able to assist.
- 6–12 months: A 20 per cent deposit is required. Your income may be verified through six months’ BAS, an accountant’s letter, or six months’ business bank statements.
- 12-24 months: A 10 per cent deposit is required. Your income may be verified using the same methods above.
- 24+ months: A 5 per cent deposit is required. Your income verification may take place in the form of a full-doc, low-doc, or simple verification.
What mistakes can banks make?
When it comes to home loans for self-employed people, there are some mistakes lenders can make that impact the outcome of your home loan.
Lack of understanding
Being self-employed isn’t ever straightforward. There may be complex trust structures with multiple companies, and trusts are often handled by bank staff that lack the experience to understand what’s happening with your income.
Another common miscommunication with banks and borrowers is that the length of time you’ve been running your own business isn’t conclusive to your income. For example, someone who has worked as a plumber for 20 years started their own company recently. While the business is new, it isn’t a new skill for the plumber, who can be classified as an expert in their field.
Lenders regularly ignore the benefit a self-employed person receives from tax deducting their car expenses from their company.
This comes down to the lender and isn’t necessarily an error. If your loan is particularly complicated, bank staff may take their time getting to your application. At Inovayt, our team has worked with numerous self-employed customers and knows how to present your application to lenders so that it won’t get overlooked or put on the ‘too hard’ pile.
It’s time to see an Inovayt mortgage broker
Small businesses are increasing in Australia, meaning self-employed home loans are becoming more common. Our Inovayt mortgage brokers are proud to have worked extensively with companies of all sizes. We pride ourselves on our work and ability to get self-employed customers into their home’s sooner.
If you’ve been self-employed for less than two years, get in touch with an expert today to secure your new home.