Millions of people are ditching the typically 9 to 5 grind for the freedom of being self-employed. It’s a world that can be highly rewarding in terms of finances and lifestyle, but the pitfall comes when you want to buy a home.
It’s always been more difficult for self-employed people to secure a mortgage. That’s because it can be hard to demonstrate a steady income and continued employment.
However, just because it’s difficult doesn’t mean it’s impossible. There is a way for you to get a mortgage when you work for yourself. Mint Equity expert Sydney mortgage brokers offer the tips below.
1. Keep up with your tax returns.
As a self-employed worker, you need to demonstrate a history of income, and you can do this with your tax returns. Your best bet is at least two years of tax assessments, which is the bare minimum lenders require.
Be aware that if you’ve downplayed your income to minimise tax, you’ll struggle to qualify for a mortgage. To put it simply, the lower your taxable income is, the lower your borrowing capacity.
2. Keep things simple.
Try not to over-complicate your business affairs. Remember, banks are highly process-driven. If you have, for example, complicated lease agreements, your lender isn’t going to waste time figuring out how it works. Aim to present easy to understand information that works in your favour.
This is especially the case for how you structure the business. If you don’t have a handle on income flow, you’re going to miss out on a loan.
3. Keep good records.
Lenders today don’t just want to see evidence of your income. They actually want to get a good idea of your living costs, no matter what your employment status may be. That’s why, if you’re on the hunt for a home loan, you need to keep good records.
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Different lenders have different requirements when it comes to verifying your expenses, but self-employed workers are urged to keep all invoices that relate to business expenses so you can supply them to the potential lender, if necessary.
4. Wait until you’re established.
If you’ve only just started working for yourself, it’s a good idea to delay your plans to apply for a mortgage until you are established and have a decent idea of your annual income. Even if you’ve been self-employed for the last couple of years, never expect that you’ll automatically qualify for that home loan.
For lenders, it’s important to know that your business is generating enough income to warrant a home loan. This is particularly the case if you’ve just started your business and your cash flow is tight.
If you’re keen to get moving with the mortgage application process, it’s important that you speak to a mortgage broker or lender as early on as you can. This will help give you a better idea of whether or not you’re likely to qualify for the loan and just how much you may be eligible to borrow.