If you are planning to buy a home and are self-employed, irrespective of how much you earn as a regular monthly income, getting a home loan will be a relatively difficult task when compared to salaried professionals earning similar incomes. To obtain a home loan you would be required to submit several documents like tax returns and letters of assessment etc. The added paperwork for home loans for a self-employed person makes the process more complicated than it would be for a salaried person.
When lenders assess the eligibility of a self-employed person for getting a home loan, more than income, they also need to ensure that the business is functioning steadily and generating revenues that meet the minimum service requirements. Providing documentation like tax returns and assessment letters from your accountant can take time, which means you would have to wait a while before you can apply.
However, all this does not mean that you are not eligible or cannot get a loan at all. There are certain requirements and formalities that people who are self-employed need to fulfill, which are somewhat different from those of a salaried person.
Hence, here are some things that a self-employed individual needs to know to get a home loan approved in lesser time even with lesser documents to submit.
Things You Should Know if Self-Employed
# 1 Apply for a Low-Doc Home Loan
If you are self-employed and feel that you might not be able to meet the full requirement of documentation for your loan application, you may opt for a low-doc home loan. Like its name, a low-doc loan requires you to submit lesser paperwork than a traditional home loan application.
In this case too, different lenders will have different requirements, however the documents generally asked for are a duly signed Borrower Certificate of Income Declaration Form, Business Activity Statements (BAS), and tax returns. In certain cases, when applying for a low-doc home loan, lenders might even readily permit you to self-declare your business income and only check whether your Australian Business Number (ABN) or Australian Company Number (ACN) has been registered for more than two years.
Furthermore to ensure that the business is a profitable one, they will also check to see whether your business is registered for GST. To qualify for a low-doc home loan, you will need a larger deposit or higher amounts of equity.
# 2 Update your financial information
Being self-employed and applying for home loans will require you to keep your financial information updated and ready. Furthermore, you also need to check whether your financial statements from the last two years, like income tax returns and notice of assessments, are lodged with the Australian Taxation Office (ATO). The reason being that most lenders do not or rarely accept financial statements that have not been filed with the ATO and you do not want that to happen.
# 3 Check Your Credit History
Your credit history plays a major role in determining your eligibility for a home loan as a self-employed individual. This is especially true for small business owners, who need to protect their credit rating scores. A low credit score sparks a red alert among lenders and put you forward as unreliable and incapable of paying off the loan. Hence, it is important to get a bi-annual or quarterly report of your credit report so that you know where you are positioned in the present time and whether you are eligible for the loan.
Documents Required for Self-Employed Applicants
Below is a checklist of documents that you would be requiring to apply for a home loan as a self-employed applicant.
- A completed and duly signed home loan application form
- Your Australian Tax File Number (TFN)
- Two proofs for verification of residence from any one of the following-
- Rate notice
- A legitimate driver’s licence with your photo on it
- Any one utility bill like your phone bill or electricity bill
- Your latest bank statement with your residence address mentioned on it
- To verify your income you can provide any one of the following document
- Balance sheet and Profit and Loss accounts for the last two years
- Personal Tax Returns and Business Tax Returns for the last two years
- Verification of rental income:
- Copy of rental contract
- Rental estimate for evaluation report
- Bank statement evidencing payment of rent for last 3 months
- Statements (min 3 months) from real estate agent showing monthly receipts
- Records of your investments and shares
- Contract of sale, including the special conditions page
- Receipt of deposit paid for purchase of property
- Plans,specification, builders quotation if any construction loans exist
Other than the following documents you also might have to provide your lender with identification that meets the government’s “100 points identification check” requirements. Below is a checklist of the documents required along side the points that they carry
- Passport (70 points)
- Birth certificate (70 points)
- Citizenship certificate (70 points)
- Legitimate driver’s licence or permit that has your photo or signature on it (40 points)
- A Letter of introduction from another financial institution (40 points)
- Credit cards or other bank cards(25 points)
Last but not the least, self-employed individuals must understand that their business should be at least 6 months old to be eligible for a home loan. Application and approval of a home loan is always a lengthy and tiring process, especially with all the paperwork involved. But, since getting your own home has been your lifelong dream, it does not mean you give up on it.
If you are not sure about how you can approach the situation and get things done faster, talk to a financial advisor and get things sorted out. You might be self-employed and have a lot of things running in your minds, but that does not mean you give up and let go. The aforementioned tips and advice will help you prepare for future plans leaving, thus saving you money and time in the process. Buying a home is not as complicated and you hear people say it is. Go ahead and give it a try.