Being self-employed can be an incredibly rewarding career path, but it comes with challenges. One of the big challenges for self-employed people is getting approved for a mortgage.
16% of Australians today are self-employed. Without a fixed, regular income, it can be tough to get a mortgage with good terms, and convincing banks and lenders that you’ll be able to pay in full every month can be a little more challenging compared to people with conventional careers.
However, while it might seem daunting, it’s perfectly possible to get a mortgage as a self-employed person in Mackay (or anywhere in Australia).
There are a few extra steps, however, some things to be aware of, and some best practices to follow. It’s best to be as diligent as possible when preparing for a mortgage application as a self-employed person, and this article will cover the main bits of information you need to get a strong start.
How Likely Are You to Get Approved for a Mortgage as a Self-employed Person?
In order to be approved for a mortgage when self-employed, most lenders will require the following:
- 2 years of tax returns and financial statements
- In some cases, lenders will accept only one tax return
- On some very rare occasions — for example, if you’re working for yourself in the same industry you were employed in for a while — you might not need a tax return at all
The length of time you have been self-employed is also relevant. 2-3 years is ideal, but with the right lender, you might be able to get approved after just one year of self-employment.
In all cases, the most important thing is being able to prove that you have a viable, sustainable business that will allow you to meet the terms of your mortgage every month for the duration of the loan.
What Are Add-backs, and Why Should You Care?
You might have heard about add-backs before, and how they can influence the mortgage application process. Here’s a quick run-down:
Your taxable income is always less than your actual income when you take into account expenses and deductions. As a result, lenders will add back certain costs that don’t reflect real expenses, to give a more accurate picture of how much money you’ll actually be taking home when you’re paying your mortgage.
Some examples include:
- One-off expenses
- Superannuation contributions that exceed the minimum
- Any rental property expenses (you obviously won’t be making these anymore)
What Are Low Doc Loans and Why Do They Matter?
In some rare cases, it can be possible to apply for a mortgage as a self-employed person without submitting any documents such as tax returns or financial records.
You’ll need to sign a declaration confirming your income, and you may be charged Lenders Mortgage Insurance (usually for loans of over 60% of the property value).
This option is quite rare, however, and in most cases, lenders will still ask for some documentation, such as:
- Business statement activity for the last 12 months
- A letter from your accountant confirming your total income
- Tax returns from the past
Some Tips for a Successful Application
In order to give yourself the best chance possible of being approved for a mortgage in Mackay (or anywhere), here are some best practices to follow:
- Stay on top of your tax returns
- Don’t try to minimise your tax. This can be tempting as a self-employed person, for example by claiming as many expenses as possible, but it could harm your chances of getting a mortgage by making your income appear lower than it is. It could come down to a choice — pay less tax or qualify for a home loan.
- Pay as much deposit as you can afford — this will put you in a better position and help you secure better mortgage terms
- Prepare a list of assets, for example, any other properties you might own, any investments, or your business itself
- Have all your documents and papers in order. Do as much of your lender’s work as you can for them, and make the decision as easy for them as possible.
- Try to maintain a high credit score. It’s good advice in general to look after your credit score, and this will strengthen your mortgage application.
Why Work with a Broker?
Navigating the mortgage application process and securing favourable terms can be a stressful and difficult process for anyone, and if you’re self-employed it comes with a unique set of challenges.
By working with a broker, you can ensure that:
- You get the best terms, selected from a wide range of lenders all over the country (including deals not available to the public)
- You’ll get the benefit of your broker’s experience, and help with the special challenges of applying for a mortgage as a self-employed person
- You’ll get help with things that go beyond the mortgage process, like insurance and legal help
At Lynam Home Loans, we have years of experience helping people in Mackay — including self-employed people — secure the best mortgage terms for them.
To find out more and learn how we can help you, get in touch with us.