Home Loan Requirements For Self Employed

When it comes time to apply for a home loan there is going to be a requirement to provide the lender supporting documentation along with the application. If you’re self-employed, then the requirements may be slightly different. To make sure that you are prepared, let’s take a look at the home loan requirements for self-employed people.

It’s important to realise that the lending environment has changed and in today’s market, you are going to need to supply more information than if you were to have applied with the same lender 2 or 3 years ago. Much of this is in response to increased regulatory requirements (i.e. the government agencies that overlook the lending market and all lenders), who have insisted that lenders strictly adhere to their own credit policies.

Many of these policies apply to a process called verification.

To satisfy the lender’s verification requirements, you’re going to need to supply some documentation across a few areas – income, expenses, assets & liabilities.

Income

One of the most important aspects of satisfying a lender to approve your home loan application is providing sufficient documentation to verify your income. If you’re self-employed, make sure that you have these documents ready to supply to your mortgage broker:

• Last two years income tax returns:  To be safe, have copies of your personal tax return and business tax returns. It is particularly important to have business tax returns from any business that you receive income from that you will be relying on as income for the application.
• Business Activity Statements: Whilst this is not going to be a requirement for all lenders, it is still handy to have them ready just in case. Have ready the previous 4 business activity statements.
• Financial Statements: Have the past 2-years worth of financial statements (e.g profit & loss statement, balance sheet etc). These will need to be accountant prepared financial statements.

Expenses

Many of the changes that have occurred with the home loan lending market in 2018 has been around how lifestyle expenses are verified. To satisfy the home loan requirements for self-employed have the following documents ready:

• Bank Statements: 6-months worth of bank statements for any bank account or credit card where lifestyle expenses are paid from. This allows the mortgage broker to accurately verify your lifestyle expenses, which is important since most lenders are closely scrutinising applicants living expenses.

Liabilities

Next category that you will need to satisfy to meet the self-employed home loan requirements is liabilities. Liabilities is simply anything that you owe.

• Copy Of Existing Contract/Statements: These must show:
  • Product type e.g. home loan, credit card, personal loan etc
  • Fixed or variable repayments
  • Cost saving features e.g. offset, redraw, or package
  • Break costs
• 12-months Of Statements: This is to verify current interest rate and costs, show any ongoing fees, and demonstrate your repayment conduct… lenders like to lend people money who show that they are good at paying it back. Most lenders will not require 12 months… many may only need 3 or 6 months, but it’s best to supply your mortgage broker with more and they can simply not include the extra with the application if it is not needed.

Assets

When applying for a home loan, the lender is going to want to see proof that the property that is going to be securing the home loan is real. Have these documents ready:

• Contract Of Sale: If you’re buying a new place, have the contract of sale ready to supply to your mortgage broker.
• Council Rates Notice: If you’re intending to use a property that you already own as security for your self-employed home loan,  have a council rates notice handy. Make sure it is a recent one, preferably the most recent council rates notice.

Other Documents

These documents are not going to be a requirement with every application, but I’m including them just so you know that they may pop up.

• Identification: Your mortgage broker is going to need 100-points of identification so make sure you have this handy.
• Statement From Accountant: This is not a requirement for all home loan lenders, however, I’m mentioning it just in case. Your mortgage broker should be able to identify pretty early in the process whether you will need this statement and some lenders have a specific format that you need to follow, so don’t worry about pre-organising this… maybe just give your accountant a heads up that you may need something from them.
• Payout Statement: This should show a final amount as well as any exit fees that are to be paid for any debt that is being refinanced. This is usually only a requirement if you’re refinancing an existing loan.

Time In Business

How long you’ve been self-employed can also dictate whether a lender will consider your home loan application. Generally, many lenders prefer you to be in business for 2 years, however, there are some that will consider applications for less time. This is why you need to speak to a mortgage broker if you’re self-employed. If you go directly to a bank, they can only advise you on their specific requirements. There are many factors, with time in business being one, that will affect whether a specific lender is suited to you. A mortgage broker will assess multiple lenders to find one that will accept your application based on how long you have been in business.

Business Performance

Obviously, the financial performance of your business will be considered by lenders. It is best that your business has been running at a profit, however, a mortgage broker experienced with dealing with self-employed business owners will be able to help you understand your financial statements according to how a lender will view them.

There are some items in your financial statements that may change depending on the lender you use. For example, depreciation may be ‘added back’ increasing the profitability of your business in the eyes of the lender. There are other add-backs that may be applied to your application as well.

There May Be More…

Whilst this list is going to help you get started with the application by having most of the documents ready, there is quite often extra requirements that a lender will request once you’ve submitted your application. These can be frustrating – for both you and the mortgage broker – however, it’s important to keep your end goal in mind.

Don’t be surprised if a lender asks for more documentation – especially in 2018 and even heading into 2019 – as all lenders are facing stricter standards from the regulator.

Save Time + Increase Your Chances Of Success

Once you know that you are in the market for a new property or as soon as you realise that it may be time to refinance, engage a mortgage broker early in the process. Have these documents ready to go and you’re going to save yourself time and increase your chance of a successful home loan application. Of course, even if you have all the documentation, there are still other considerations. Each lender has their own lending policies that will need to be assessed against your personal circumstances and your credit history is going to be reviewed before a lender will decide whether to extend to you an offer of finance.

Engaging a mortgage broker early in the process going to give you time to discuss your personal circumstances so that they can identify a lender that is most appropriate for your needs. Give your mortgage broker the above documents upfront and you’re going to make it a lot easier for them to process your application.

Speak With A Specialist

Being self-employed increases the complexity of your home loan application so it’s important that you speak to a specialist – like us. We are small business owners ourselves and we know how complex your financial circumstances may be since you run your own business. Please contact us if you’d like to discuss your specific circumstances.

Author: Shane