I’m Self-Employed. I Can’t Get A Home Loan!
I’m Self Employed. I Can’t Get a Home Loan!
Over the time I have been a mortgage broker this has become one of my favourite myths to bust. Yes – You Can Get A Home Loan! I’m a self-employed mortgage broker and I have had a home loan and I will be having one again in the near future.
Being Financially Responsible
What the sub text is here is – “Are you financially responsible?” which is one of the main criteria of any loan application. Part of being self employed means being financially responsible. In a nutshell you need to have your tax returns completed and up to date and these need to be showing a reasonable level of earnings. What is a reasonable level of earnings? Well it depends on your level of other borrowings and your loan amount amongst other factors. If your tax returns show earnings of $5,000 p.a. and you are asking to borrow $500,000 – it’s probably not going to happen. Common sense applies here, $5,000 per year income equals $416 per month. The mortgage repayment on $500,000 at 3.69% over 30 years is $2,214. See what I mean? Not happening.
My Accountant Keeps My Income Low to Reduce My Tax
Over the years I have seen numerous clients who tell me that their accountant keeps their income low to avoid tax. In my opinion this is a double edged sword. Showing a reasonable income on paper allows you to borrow money. This money then allows financial opportunity and growth, such as buying your own property, buying an investment property, investing in equipment and assets in order to grow your business. I like to challenge my self-employed clients who have fallen into this trap to start considering how they want to build their wealth. One of the first steps in this process is demonstrating a reasonable income on paper. If this means paying more tax, pay more tax. The long term financial benefits out-weigh the short term cost.
I Have an Envelope Full of Receipts!
The next hiccup I see with self-employed people is the tradie with an envelope for of receipts stuffed into the glove box of his/her ute. All I can say is ‘grab the bull by the horns’ and deal with it. The first step is to realise there are many great bookkeepers in Geelong and software packages to deal with this problem. I’m not saying I don’t sympathise – I do! I’ve been guilty of this myself. Once again, get some help, put a system in place and organise your business.
Low Doc Loans
And lastly, what if you really haven’t tackled the above and still want to buy property in Geelong? Well I can still help you. The above points are pertinent to a ‘full doc’’ loan, where full financials, including tax return, profit and loss, and balance sheet are submitted as part of the loan application. Some, not all lenders have ‘low doc’ options, whereby income is assessed by means other than the above. In particular, these lenders may use BAS, business bank account trading statements or an Accountant’s Declaration to support income. The other important thing to remember regarding ‘low doc’ loans is that there are often other restrictions associated with them. Often a lender will only lend to 80% of the property’s value, interest rates (which are a measure of risk) will be higher and undoubtedly there will be higher fees and charges. Some of my clients are prepared to pay this higher price in order to qualify for a loan, as the long term gain outweighs the short term cost.
So, hopefully, I have busted the myth for you – “I’m self-employed I can’t get a home loan!” You absolutely can. It is often a matter of understanding how you fit into the above picture and then taking steps to address any issues that you may have.
And lastly talk to a mortgage broker! It is our job to help you through the home loan maze.