You’re a business owner. Now let’s make you a homeowner!
Being your own boss is considered a major achievement and usually, it is celebrated as a pretty big life event. But unfortunately, when it comes to getting a home loan, the banks don’t always raise a glass for you.
The issue with many lenders is usually because they don’t like to see a variance in income. And this has been made even tougher with Covid-19 policies. They like the same – whether it be weekly or monthly. Ideally, they want to see that paycheck of yours with roughly the same amount on it, week after week. This can be frustrating if you run your own business, we know! And we understand, for the self-employed, usually it’s just not that simple.
Firstly, let’s compare the two; Self-employed vs Salaried
Being self employed has its up and downs of income, there are also added factors like paying wages, superannuation, managing staff and employment contracts. And don’t forget tax payments, tax returns and your BAS.
On the other spectrum, being an employee, things are a bit less complicated. You receive a constant bank transfer with payslip included, your super and tax are paid automatically. There’s not much else to it.
When we really look at it though, employees can still end up in hardship, they may lose shifts, get sick, or even lose their jobs altogether (just look at what 2020 entailed).
Unfortunately, the banks go by their own rules and there are many more requirements for most lenders due to the view that self employed people’s incomes are seen as riskier. For now, we work hard to ensure that you as a business owner know all the how-to’s, what to’s and when-to’s. We also have plenty of experience around which lenders are happy to provide loans based on your situation.
So let’s look at how you, as your own boss, can increase your chances of saving for a self-employed home loan deposit. Here are a few tips to get you on the right path.
- Confirm your employment status
Are You Really Self-Employed? If you are a contractor or sub-contractor, the bank or lender may see you as an employee. Be sure that when checked, you are indeed confirmed to be a business owner and self-employed. (we can help you with this!)
- Pay yourself first to acquire the Savings needed!
Easier said than done, we know! In order to have the best chance at a home loan, we need to see the money. When you have those great weeks, save that money. Don’t go and spend it or re-invest it into your business. The rules are the same for everyone if you have a low deposit. This needs to be saved in a regular pattern or held in an account for 3 months. That means not borrowing a bit from it during those 3 months.
- Set a Goal
What kind of property are you looking for? What’s your budget? Where do you want to live and how much do homes cost in that area? What deposit will you need? Just like any goal, putting it to paper and mapping out each detail will help bring your vision to life. Keep it in sight! Have your goal posted around your home or on your phone, maybe even have it on your calendar each month with small amounts so you can cross it off. We often have meetings with self employed clients early on to ensure you are well prepared to buy when you find that ideal home.
- Take Advantage of being Self-Employed
There are many things you can claim on tax as a business owner. We would recommend contacting your accountant and finding out what you can claim in order to help you towards your savings goal! Several lenders will acknowledge your income as much higher than your taxable income by adding back on depreciation and interest costs.
- Take out Income Insurance
In case anything happens to you, it’s always good to have a back up plan. Income insurance is a great way to make sure you are covered if you need to have any extended time off, where you can not put into your business what you normally do. This is a sensible way to be secure about meeting all your repayments once you get your home loan.
- Ensure all your financials are up to date
We see a lot of people (especially self employed) leave their tax returns to the latest date possible. So this is your friendly reminder! Lenders will have strict requirements around how recent the tax returns are so that they can calculate your lending capacity. This has been brought forward for lenders due to Covid-19, and most of them will want to see your 19/20 tax returns and financials. Getting into the habit of being up to date with your income and keeping your financials in order is ideal not only for the purpose of getting a loan.
We can further suggest ways to improve your borrowing power so that you can put your best foot forward to the banks. This can involve planning and discussion around several factors such as:
- Interest expenses
- Paying above normal super contributions
You may also have heard of low doc loans (or even no doc home loans) for those who are self employed or who run a small business. “Low doc loans” and “no doc loans” are almost always less attractive than the standard full doc loans. This is usually because the interest rates offered also tend to be higher and with higher fees. However, there are many situations where these types of loans are well suited to your situation. The rates for the low doc options are surprisingly competitive nowadays and often not far off full doc interest rates. However, these types of loans would not be the first option in many cases.
Applying for a low doc loan will still require the applicant to supply documents, such as:
- An accountant’s declaration
- Business activity statements (BAS)
- Business bank statements
- Generally, you would need to have had your ABN for at least 2 years
- You would need to be making a profit each year
Further to note, if you can manage a large deposit, then you will end up with a much better interest rate. Low doc interest rates are very different depending on the amount of deposit you have.
If you’re still doubting yourself, take a read below on a successful home loan story for some inspiration…
Once you have worked out a plan with our help, we can sort your deposit or savings and also help get your other paperwork together. It’s then time to look for a great loan option. Being self employed does not mean you can’t get a home loan. One of our team of specialists is with you on an ongoing basis, helping to cultivate your homeownership dreams into reality. Contact us today to see how we can help you.