With most banks considering business owners a higher risk than employed workers when you’re self-employed, you can feel even more apprehensive when applying for a home loan.
The good news is that there are actions you can take to put yourself in the best position to have your finance approved. Here are seven tips to keep in mind if you’re self-employed and planning to buy a home or investment property.
Have your financials up-to-date
As a business owner, you will need to provide the last two years financials. If you haven’t been in your current business for two years, then you’ll need to show you have worked in the industry for a minimum of two years.
As part of your paperwork, you will need to provide your tax returns and notices of assessment, as well as financial statements such as profit and loss. Good record keeping will mean you can access this information quickly and efficiently to provide adequate proof of income and stability.
Paint the right picture of your financials
By working closely with your broker and your accountant, you can determine the best way to showcase your financials, so the lender gets a better understanding of your business position.
For example, if you are in the start-up phase of your business, your expenses can be higher as they include equipment and other set-up costs to get your business off the ground and running efficiently. But it doesn’t mean you will have this level of expense moving forward. Your accountant will also be able to outline what costs are tax deductible to show a healthier bottom line.
When going for a loan, it is important that your lender has access to information like this to make a more informed decision on your ability to service a mortgage. Your broker and accountant will be able to guide you through this process and provide you with greater information based on your circumstances.
Protect your assets
Before you go for a loan, it is essential to talk to your accountant about the best structure for your business from an asset protection perspective.
While it is in your best interests to make sure your assets are protected from a business crisis, keep in mind that your lender will also consider this when evaluating your ability to service the loan.
Unfortunately in the financial industry loyalty isn’t always rewarded. While it can be convenient to stay with the same back you have always used it may not work to your best advantage. Not all loans and lenders are equal.
You will find some loans have greater flexibility for those who are self-employed, so it pays to shop around. But don’t just consider the best interest rate also look at the fine print and inclusions.
This is where a broker can help. An experienced mortgage broker will be able to take your circumstances and requirements into consideration and then compare and source the best loan options for you to save you time, stress, and quite often thousands in interests and years off your loan.
Prepare long before you need a loan
The first four tips above are useful for when you are ready to get a loan. However, the best advice is to make sure you are paying yourself a regular wage well before you apply for one.
The longer you can show your business supports your wage, the better you look in the eyes of a lender. One of the most important concepts to learn in business is to pay yourself first, so make it a priority.
Take out Income Protection Insurance
Having an income protection insurance policy is an excellent safeguard in case life throws you a curveball. Not only will it allow you to cover your regular costs including your mortgage repayments if something happens, but it also shows the lender you can still service the loan even if worse comes to worse.
Beware of reducing your taxable income
Your accountant is likely to focus on minimising your taxable income to help you reduce the amount of tax you need to pay each year. While this has its advantages; when you want to apply for a loan, this can work against you. Without an adequate taxable income, many lenders will not want to do business with you.
If you are planning on buying a home or investment property make sure you let your accountant know as soon as possible so they can help you tell the right story.