It wasn’t long ago that self-employed Australians needed to jump through hoops to secure a home loan. These days it’s easier than it once was, but you still need to prepare yourself before you apply. Whether you’re a sole trader, contractor or business owner, here are five tips to help you obtain the right home loan for your needs.
1. Explore your options
Traditional lenders such as banks have reduced their self-employed clientele, but the good news is there are a number of non-bank lenders who are more than happy to talk to you if you’re self-employed. Shop around and find a few options to compare before making a decision. Lenders vary in their criteria: with a company income, some lenders will use 80 per cent of your company profit and some will use 100 per cent; some lenders will count depreciation, and some will not, so it’s important to speak to someone who will understand your financials and get the maximum serviceability for you as the borrower.
2. Get your business in order
The more organised your business documentation, the better this will look to the lender. This means ensuring that:
- Your business is structured correctly.
- It’s registered for GST.
- Your BAS is up to date.
- It has no outstanding debts.
Inconsistent income can be problematic, but if you can show a lender a few years’ accounts, that can help your application by proving you have a viable business going forward, even if you’ve recently had a bad year.
3. Get your financials in order
On a personal level, any savings need to be in an account with your name, not a third party’s, and a good credit rating goes a long way, so pay your bills on time. Credit reporting has become quite sophisticated and if you don’t have a good credit score that will cause problems. Your credit score should sit above 700; below 700 and many lenders will consider you an automatic “no”, under 500 your chances get a lot slimmer.
4. Speak to a specialist
Find a broker or lender who specialises in self-employed clients, who understands your position, and you’ll benefit from their expertise and experience. Be open and honest when speaking to the person who is doing your finance and they’ll have a better idea of both your needs and goals and what’s possible from the lender’s side.
Having someone on board who understands self-employed borrowers’ challenges – revenue fluctuation and inconsistent income, and small-business issues like cashflow stagnation – can help to locate a wider offering of different products.
5. Be flexible
Understand that you may not be offered the cheapest loan to begin with, so be flexible about potentially refinancing down the line if circumstances change in your favour. The way the property market is going, it’s generally better to buy sooner rather than later even if the interest rate is a little higher because the capital gains you make in that time will often cover the discrepancy.
In my experience, self-employed people are the most reliable borrowers in the country and shouldn’t face stricter loan criteria because their financials are more complex than borrowers with more standard employment. The key to servicing self-employed borrowers is a better understanding of their challenges and more flexible products to match their circumstances but it also helps if you as the borrower come to the table with the right credentials and mindset, too.
