Hello, dedicated entrepreneurs, freelancers, and small business owners! We understand the tremendous effort you put into your work. However, when it comes to purchasing a home, being self-employed can sometimes feel like an obstacle rather than an achievement. That’s precisely why Lending Guide is here to assist you in connecting with the right mortgage brokers who specialise in catering to individuals just like you. Rest assured, we’ve got your back!
Determining Your Borrowing Capacity
- Less than a Year of Self-Employment: If you’re in the early stages of your self-employed journey, with less than a year under your belt, you can potentially borrow up to 80% of the property’s value.
- One to Two Years of Self-Employment: After completing your first year, your borrowing capacity can increase to as much as 95% of the property’s value.
- Low Documentation Loans: For those with limited income proof, it’s still possible to secure a loan ranging from 80% to 90% of the property’s value.
Eligibility for Approval
Each lender has its own set of criteria. While many traditional lenders may require two years’ worth of tax returns, we can connect you with flexible lenders who may accept just one year’s tax return or alternative forms of income verification. Additionally, some lenders may consider your application if you recently transitioned to self-employment within the same industry. Lenders often favour self-contained properties and smaller property units.
Length of Self-Employment
While many lenders prefer to see a two to three-year track record of self-employment, there are options available for individuals with just one year of self-employment experience. Crossing that one-year mark can significantly improve your chances.
Special Considerations for New Self-Employed Individuals
If you’ve embarked on your self-employed journey in the past year, you may face limited options with traditional banks. However, our lending partners are willing to assess your previous job’s income as evidence of your ability to manage the loan.
Avoiding Common Banking Mistakes
Complex income structures sometimes confuse traditional banks. At Lending Guide, we delve deep into the intricacies. Whether it involves explaining intricate trust structures or highlighting benefits such as company cars, we ensure that lenders accurately comprehend your financial situation.
Calculating Your Income
Lenders typically rely on tax returns to evaluate your business’s financial health. Some lenders consider your most recent year’s income, while others may calculate an average. Our strategy is to identify the lender that offers the best terms based on your financial documents.
Self-Salaried Individuals’ Policy
One of our lending partners adheres to a straightforward policy for self-salaried individuals:
- 2 payslips or 3 months’ salary credits, accompanied by an Accountant’s Letter.
- Treats all self-salaried income akin to regular employment (PAYG).
Understanding Lenders’ Perspective
Lenders may perceive self-employed individuals as higher-risk borrowers, but this viewpoint can vary by industry. For instance, construction may be viewed less favourably compared to professions like accounting. Nevertheless, we recognise the value in all profitable businesses.
Significance of Tax Returns
Your tax returns play a crucial role in helping lenders assess your income and your business’s financial health. In some cases, lenders may even examine unusual expenses and add them back to your income to gain a more accurate understanding of your earning capacity.
Exploring Low Documentation Loans
Certain lenders offer low documentation loans, where you can forgo submitting tax returns by providing an income declaration. Be mindful that these loans may come with higher fees.
The Advantage of Home Loans
If you have a residential property as collateral, it’s advisable to opt for a home loan rather than a business loan. Home loans typically offer more favourable interest rates.
In Conclusion
Securing a home loan as a self-employed individual may pose challenges, but it shouldn’t stand in the way of your homeownership dreams. With the guidance of the right self-employed mortgage specialist, you can navigate the lending landscape with confidence.
Are you ready to turn your dream of homeownership into a reality? Don’t hesitate. The longer you wait, the more overwhelmed you may become. With Lending Guide at your side, purchasing a home or refinancing will never feel like a burden.
At Lending Guide, we’ve taken the complexity out of the equation. Simply take our interactive quiz to get matched with a mortgage broker who understands your unique needs.
Frequently Asked Questions
If you have less than a year of self-employment experience, you can potentially borrow up to 80% of the property’s value.
Yes, some lenders are willing to work with individuals who have completed one year of self-employment.
Lender perceptions of risk may vary by industry, with some industries considered less risky than others. However, we believe in the value of all profitable businesses.
Low documentation loans allow you to secure a loan without submitting traditional tax returns. Instead, you provide an income declaration. Keep in mind that these loans may have higher fees.
It’s generally more advantageous to choose a home loan when using a residential property as collateral, as home loans often offer more favorable interest rates.
