Finding home loans for self employed or contract based workers can be a stressful experience, but so long as you’re organised – it doesn’t have to be.
Last year, approximately 16.3% of Australians identified as being self employed. Generally speaking, the Australian Tax Office will view someone as self-employed if the person chooses to be recognised as such, or is generating income to the point where the person is required to file a tax return under legislation in the relevant jurisdiction. However, the term ‘self employed’ is certainly broad, and covers a wide variety of workers who identify as a freelancer, an independent contractor, a temporary worker, a seasonal staff member, and of course, those who own and operate businesses.
While pursuing this form of work can be a way to break free of the rat race, be your own boss and have your shot at generating some serious income, the downside is that the very nature of self employment is it’s volatility. As the boss, or the captain of your own ship, you’re responsible for the all important regular cash flow, as this is what ensures that you are able to earn a wage, and to in turn pay your bills.
As such, accessing home loans for self employed applicants can be a tricky business to navigate. Many banks are wary of the perceived instability that this form of work is linked to, and to even be considered for a mortgage, self employed applicants are required to submit a significant amount of paperwork when compared to an application from someone who is employed in the more traditional sense.
However, instead of getting disheartened and avoiding the process entirely, the good news is that applying for home loans for self employed workers isn’t all bad news so long as you’re able to present yourself and your income in a way that banks can easily interpret as a stable candidate for a home loan – but what exactly does that involve?
Getting A Mortgage If You’re Self Employed
When it comes to getting that all important pre-approval for a home loan, sourcing finance for self employed Aussies has proven to be difficult in the past for many applicants who work in these types of formats. To shed some light as to why, according to the Australia Bureau of Statistics, more than 60% of small businesses cease operations entirely within their first three years of trading.
As such, the data alone is one of the primary reasons as to why obtaining finance if you’re self employed is considered to be risky from the view of many of the major lending providers. Self employed people may also struggle to prove their income and any assets owned, which only makes it harder to meet the standard lending criteria that each institute has in place. If you identify as a contractor, many banks even treat each individual contract as a separate ‘job’ – making it very hard to meet the expectations of staying in the one role for a certain period of time in order to get approved.
Essentially, self employed home loan applicants need to do everything they can to present themselves as financially stable earners. Most lending providers require self employed applicants to have at least two years of earnings and experience under their belt from this type of working status, purely to ensure your income is stable and established. However, some will consider applicants who have been self employed for as little as one year, providing they have previously worked in the same industry or sector prior to striking out on their own.
As a general rule, lenders will ask for your old tax returns as a means to offer a guideline for how much you actually earn. Although the exact techniques deployed vary from lender to lender, the aim of the game is to calculate whether your business may grow, and whether your income is stable or not. Some institutes will base their estimates on your lowest income figure, whereas others may use your most recent tax return.
When presenting your application, it’s also important to factor in things classed as ‘add backs’. Lending institutes will sift through your tax returns with a fine toothed comb, and add backs are generally classed as expenses that may reduce your taxable income, but are not defined as ongoing. Examples of these can include –
- Voluntary contributions to your superannuation fund
- Depreciation on taxable assets
- Net profits retained in a company
- Interest paid on existing loans
- Income distributed via a trust
- Negative gearing for property assets
Needless to say, the way you present yourself financially as a self employed application can make or break your chances at getting pre-approved for a home loan. While specific home loans for self employed applications are often available via ‘low document loans’, they still require a significant amount of evidence and paperwork to be submitted with your application.
If you want to streamline the process and do everything in your power to get pre-approved the first time, it’s worth considering the services of a reputable mortgage broker. As finance industry professionals, they know exactly which loan product is most suitable for you, and how to present your application to a lending institute.
As of 2020, 6 in 10 Australians used a mortgage broker to assist them in acquiring a home loan to purchase property – the highest that it has ever been. What’s more is that 90% of these customers reported that they were happy with the services provided to them – but where do you find one?
How To Streamline The World Of Home Loans
The big attraction of buying your own home is just that – it’s yours, once you’ve paid back the banks of course. Apart from having somewhere to live, the quest for home ownership is also about having a long term investment strategy. If we’re looking at it from the viewpoint of decades instead of months, generally house prices do rise, and so does the value of your investment.
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility apply.
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