Self Employed Home Loans
Along with owning property, becoming your own boss is another part of the Australian dream. For some it’s a lifelong ambition that takes years, even decades, to realise, while for others it’s a decision made in the best interests of their finances.
Whatever the drivers behind it, becoming self-employed has a number of benefits. There’s the feeling of pride and independence in having control over your own affairs and building something of your own. You also get the chance to try something different and much more challenging, making for a more stimulating work environment.
Yet despite all of these advantages, there’s one area where being self-employed may not work in your favour: When you’re looking for a home loan. For this reason, self-employed home loans exist to aid business owners in purchasing their own home or investment property.
What challenges do business owners face in securing a traditional home loan?
There are a number of reasons why those who are self-employed typically have a harder time securing financing for their property. This is largely due to the way lenders operate.
When a lender grants someone a home loan, they are ultimately taking a risk on that individual. After all, the price of a house is measured in hundreds of thousands, sometimes millions, of dollars – a significant amount for any lender, to say the least. They are essentially betting on the fact that the borrower will repay the loan, on top of any interest accrued on the total.
A lender doesn’t want to take on a borrower who is at risk of defaulting on their mortgage repayments. After all, with such a large loan, the lender’s finances are tied up in that of the borrower’s also.
Unfortunately, those who are self-employed do not typically meet the standards many lenders set to determine if a borrower is reliable or not.
For one, business owners do not necessarily have a guaranteed income. Particularly for those with a new business, owners might be living off their savings while using the profit they turn to pay off their business loan.
Not only that, but because they don’t have anyone above them paying their wages, their income depends entirely on the success of the company – a factor which can fluctuate from month to month. In the eyes of a lender, this can all make a self-employed person seem an unfavourable risk.
Self-employed persons also tend to lack the required documentation for securing a home loan. Lenders typically look at a variety of paperwork in order determine the creditworthiness of someone applying for a loan. This generally includes documents such as recent payslips, a letter from an employer, an employment contract or a tax assessment notice.
However, if you’re self-employed, you may find it difficult to provide up-to-date and comprehensive versions of these documents. It’s an issue that’s exacerbated by the fact that, as a business owner, you’re more focused on the running of a business than having financial paperwork on hand.
And even if you do manage to get a hold of these documents, you might very well find that they don’t accurately reflect the state of your business. The financial figures could be out of date, providing an inaccurate picture of your financial health, and making lenders more wary of you.
It’s clear that, when it comes to getting a traditional home loan, self-employed persons can be waging an uphill battle. For all these reasons, self-employed home loans exist in order to make things easier for them.
Bookstore owner Debra from Townsville
Debra is a 29-year old small business owner who lives in Heatley, one of Townsville’s western suburbs. She’s a single mum to one 3-year old boy, and is renting her current property. She pays around $300 per week for rent. This is money that she feels would be better used paying down a mortgage instead of going to someone else. She’s currently looking to buy a small two-bedroom property to call her own that’s closer to her place of business.
Debra studied photography at university, but now makes her money from a second-hand bookstore she opened in the centre of town three years ago. While the early going was tough, thanks to time, publicity and smart business acumen, the store has started to turn a profit, something that she, as the only full-time employee, has reaped the benefits from. Thanks to this she has been busy steadily paying down her debt.
However, despite these positive results, Debra is worried that she won’t be able to get financing for her prospective home. She doesn’t have any payslips she can point to as proof of how much she makes a week. While she does have financial paperwork for her store, she’s concerned lenders will get the wrong impression. These documents are for the previous financial year, before her business started really taking off, and show a rather unfavourable view of her finances – one that she can’t prove has changed today.
If she were a typical borrower, she could perhaps point to a copy of a new contract she’s recently signed, which would indicate to the lender that she is making more than her older documents indicate. But she’s her own boss – she doesn’t sign a contract with herself! What are Debra’s options?
The benefits of self-employed home loans
Self-employed home loans are created with the particular challenges faced by self-employed persons in mind. Specifically, this means the documentation requirements are less onerous than they would be for a typical lender.
For the majority of self-employed home loans, the only paper work you’ll need are:
- an Accountant’s Declaration OR
- your Business Activity Statements for the last year OR
- 6 months’ business bank statements
You’ll also need to verify that:
- you have held an Australian Company Number or Australian Business Number for at least two years, though some lenders will accept 6 months
- that they have been registered for GST for at least one year if declaring an income over $70,000
The ultimate goal of such self-employed home loans is to stop business owners from being closed out of the home buying process. Entrepreneurs and small business owners built Australia. Why should they be essentially punished for their enterprising skills?
The self-employed home loans offered by Future Financial have been specially tailored to the needs of business owners.
With Future Financial’s self-employed home loans, you can borrow up to 90% of a property value. In addition to this, when you deal with Future Financial, you’re dealing with a lender who knows and understands the challenges of securing a home loan for a self-employed borrower. We can take our years of experience in dealing with such loans and apply it to your situation, ensuring you get a fair deal.
If you’re ready to secure your self-employed home loan, contact us now.
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