Low-documentation Home Loan
Can self-employed borrowers secure a home loan?
If you are self-employed and seeking a home loan, you might find a few obstacles in your path. The main issue is that you do not have the typical documentation required to demonstrate your regular income. Without these regular payment records, lenders might consider you a bad risk.
But this does not mean you are completely ineligible for a home loan. As more people are choosing self-employment, lenders are recognizing the need to create new options to help them secure a home loan.
So how do you boost your chances of convincing lenders that you are a good risk as a self-employed borrower?
Gather your financial records
You might not have a regular payslip, but you can still show your financial records to your lender. Bring copies of your personal tax returns and business financial statements, along with your bank records. Ideally, you should provide records going back two years, so the lender can have a clear idea of your long term financial standing.
Wait a few years
If you have only just started your own business, postpone the home loan for at least two years. Sadly, most small businesses have a short lifespan, and you don’t need the additional stress of a new mortgage when you are focusing on getting your small business off the ground. Focus on your business first, and once it is established, monitor the financial situation until you can demonstrate that the business revenue is steadily increasing. You will manage a home loan much more effectively once you have the strong foundation of a steady income and an established business.
Find the right mortgage broker
Look around for a mortgage broker who specializes in working with self-employed clients. Your mortgage broker will know the best lenders for your situation, streamlining your search for the right home loan.
Prepare yourself financially
The reason lenders are wary of lending to self-employed borrowers is due to the financial uncertainty of running your own business. You can offset this risk by saving a substantial deposit and choosing a time when your business is stable and you have at least two years of steady income behind you, along with some demonstrable growth. This is not only for the benefit of impressing your lender – you also have a much better financial foundation to help you navigate you through the first few years of balancing your home loan and your business.
Consider a low-doc home loan
A low doc (low documentation) home loan is suitable for borrowers who don’t have sufficient documentation to apply for a traditional home loan. Typically, this would apply to self-employed borrowers or small business owners who do not have enough documentation to prove regular ongoing income. The downside of a low-doc loan is that the interest rate will be higher than a regular loan, in order to offset the lender’s risk. If a low-doc home loan seems like the right option for you, calculate your future repayments based on a higher interest rate to ensure you can manage them comfortably and still make progress on your loan.
For direct individual advice on the right home loan for your financial situation, talk to a specialized mortgage broker today.