If you’re self-employed, then there’s a good chance you’ve had a hard time getting credit before. Lenders typically shy away from people who don’t have a traditional job. After all, when you work for yourself, there’s no guarantee that you’re going to earn the same amount of income each month. This means that you can’t offer the same level of financial stability as a standard employee.
Of course, just because you want freedom from the typical 9-to-5 job doesn’t mean that you don’t want the same things as other Australians too, such as a family home. The difference is that self-employed people may need to consider different types of loan options to put their lender’s mind at ease.
Applying for a Traditional Home Loan
If you want to apply for a typical home loan as a self-employed person, then the first thing you’ll need to do is look for a lender that’s open to self-employed borrowers. This might be easier than you think today, as more Australians are beginning to work for themselves. Statistics from the Bureau of Labour Statistics show that many men and woman are running their own small businesses across the country.
Typically, you will need to be able to show the person offering you a mortgage that you’re capable of paying the bills. This means showing two years of statements from your bank account (at least) as well as details of your tax returns. You may also need letters from your accountant to convince a lender to consider you.
If you haven’t been self-employed for two years yet, you may still be able to apply for a home loan. For instance, you’ll need to show that you’ve worked in your chosen industry for more than two years. If you’re now a self-employed designer, for example, then you’ll need to show that you were employed as a designer at another time in your career.
Guarantor Loans for People with Limited Experience
If you have less than one year of experience as a self-employed individual, then your options will be even more limited. Most banks and lenders refuse to offer any money to someone who hasn’t worked for themselves longer than a year, and they’ll need to see proof of income from your tax returns. There’s a chance that some specialty lenders will consider the wage from your last typical job when deciding whether to lend to you.
Another option is to consider applying for a guarantor loan. These loans are often offered to people who want to borrow more than 80% of the purchase price for their building. However, you might be able to convince someone to consider you as a self-employed homeowner with a guarantor too.
Just remember that your guarantor will be responsible for paying your home loan bills if you can’t. This means that you should always think carefully about what you can afford before you apply for your loan.
Low Doc Loans for Self-Employed People
A low doc loan is the only form of home loan currently explicitly designed for self-employed people. However, that doesn’t mean that all self-employed individuals will be able to access this kind of loan. To use a low-doc loan, you’ll need:
- To borrow less than 60% of the home’s value (or pay Lender’s Mortgage Insurance)
- To use signed income declarations instead of tax returns.
- To provide as many details about your current and future income as possible.
Notably, low doc loans aren’t available everywhere. Some banks are beginning to remove these lending types from their system to simplify their loan offerings.