Self-employed professionals who earn similar monthly incomes will find it difficult to get a loan for a house. You will need to provide several documents, such as tax returns and letters assessing your income. Self-employed people have to submit more paperwork than salaried individuals.
Lenders will assess a self-employed individual’s eligibility for a home loan based on more than just income. They also want to make sure that the business has been operating steadily and that it is generating revenue that meets the minimum service requirements. Documentation such as tax returns or assessment letters from your account can take a long time to provide, so you may have to wait before applying.
All this does not mean you cannot obtain a loan. Self-employed people have to meet certain formalities and requirements that are different from those for salaried individuals.
Here are some tips that self-employed individuals should know in order to obtain a home loan faster and with fewer documents.
What You Should Know If Self-Employed
# 1 Apply for Low-Doc Mortgage Loan
You can choose a low-doc loan if you’re self-employed. A low-doc home loan is just as its name suggests; it requires less paperwork than a standard home loan application.
Different lenders may have additional requirements in this case, but the most common documents required are a signed Borrower Certificate for Income Declaration, Business Activity Statements, and tax returns. When applying for a home loan with low documentation, some lenders will allow you to declare your business income yourself. They only ask that your Australian Business Number or Australian Company Number be registered for at least two years.
In order to determine if the business is profitable, they’ll also verify that your business has been registered for GST. You will need to have a higher deposit or more equity in order to qualify for a home loan with low documentation.
# 2 Update your financial information
You will need to have your financial data updated and available if you are self-employed. You should also check if your financial statements for the past two years have been filed with the Australian Taxation Office. Most lenders will not accept or only rarely take financials that are not filed with ATO. You do not want this to happen.
#3 Check Your Credit History
As a self-employed person, your credit history will play a significant role in determining whether you are eligible for a mortgage. Small business owners need to be careful about their credit ratings. Low credit scores are a warning sign to lenders, and they will view you as unreliable or incapable of repaying the loan. It is, therefore, important to obtain a report on your credit score every two or three years so you can know how you stand at the moment and if you qualify for a loan.
Documents required for self-employed applicants
Here is a list of documents you will need to submit a loan application as a self-employed applicant.
- The completed and signed application for a home loan
- What is your Australian Tax File Number?
- Two proofs of residency from any of the following:
- Rate Notice
- Your photo on a valid driver’s license
- You can pay your utility bills in one bill, such as for electricity or phone.
- The latest bank statement that includes your address.
- You can use any of the following documents to verify your income.
- Balance sheet and Profit & Loss Accounts for the Last Two Years
- Last two years’ Personal and Business Tax returns
- Verification of rental income
- Rental contract copy
- Rental estimate for evaluation report
- Bank statement showing payment of the previous three months’ rent
- Views from the real estate agent (minimum three months) showing monthly receipts
- Keep track of your investment and share records
- Contract of Sale, including Special Conditions Page
- Deposit paid on purchase of property
- If construction loans are available, the plans, specifications, and builders’ quotations will be required.
You may also be required to show your lender identification that is compliant with the “100-point identification check” requirement of the government. The list of documents needed is below, along with the points they carry.
- Passport (70 Points)
- Birth Certificate (70 Points)
- Citizenship certificate (70 points)
- Valid driver’s license or permit with your signature or photo (40 points).
- A letter of introduction from another institution (40 Points)
- Card credit or any other bank card(25 points).
The conclusion of the article is:
Self-employed people must also understand that they are only eligible for a mortgage loan if their business has been in operation for at least six months. The application and approval process for a home mortgage is always long and tiresome, especially when you consider all the paperwork. If owning your home is your dream, you should not give up.
Speak to a financial adviser if you’re not sure how to proceed and want things done quicker. If you are self-employed, your mind may be occupied with many things. However, this does not mean that you should give up. These tips and advice can help you plan for the future and save you time and money. It is not as complicated as people make it out to be. Please give it a go.