For most Kiwis, applying for a home loan is fairly straightforward. But for those who are self-employed, running their own business, or working as a freelancer or contractor, applying for a home loan can be a little more complicated. That doesn’t mean it’s impossible, it just takes a little extra work. If you’re in the market to buy your first home and you’re self-employed, here is a guide to some of the things you’ll need to think about.
Proving your income
Just as you would if you worked for an employer, proving you are able to service your home loan is an important part of the application process for a self-employed borrower. Most lenders require two years’ worth of financial records – although some lenders will consider just one year’s financial records.
You’ll need the following to show proof of income if you’re self-employed:
- Your business’ balance sheet showing financial position at the current time.
- Profit and loss or income statements showing your business’ financial performance over a specific period of time.
- Cash flow statements recording money coming in and going out of your business showing patterns of income and expenditure.
Along with these records, bank statements and a declaration from your accountant, lenders will also want to see a strong track record of regular work, savings in the form of a deposit, and evidence of a good credit history.
Paying down your debt
When your home loan fixed interest rate term is nearing the end, it’s worthwhile getting in touch with your mortgage adviser to discuss how you’d like to proceed. Together with your mortgage adviser, you’ll consider what may be coming up for you in the next few years and then decide if it’s best to refix your mortgage or move to a floating interest rate instead.
Perhaps your income is going to increase allowing you to make extra mortgage repayments to pay down your mortgage faster. Or you may be considering growing your family and will need to fix your mortgage repayments for some time while on a single income. Your mortgage adviser will help you navigate how best to structure your home loan to fit each of these situations.
Buying an investment property or new home
Your ability to repay your mortgage is directly impacted by how much you earn – your income – and how much you spend – your expenses. So set yourself up for success in your home loan application by paying down any high interest debt, like hire purchase, credit cards or personal loans before applying for a loan.
Sort out any unpaid or late debts that could impact your credit history and reduce your chances of securing a mortgage. And ensure your taxes and any GST payments are filed correctly and are paid up to date.
Setting yourself a savings goal
Some lenders may be hesitant lending to self-employed borrowers and may charge a margin on interest rates or place extra restrictions or conditions on loan-to-value ratios or insurance requirements.
By saving a deposit you’re showing lenders that you’re committed to living within your means and that you are able to comfortably service a mortgage while managing everyday living expenses.
Getting the right advice
As a self-employed borrower, getting advice from a mortgage professional – like a Mortgage Express branded mortgage adviser - is invaluable when it comes to finding the right finance solution.
A mortgage adviser knows which lenders are more likely to lend to self-employed borrowers, so you don’t waste time applying with a lender that isn’t likely to approve your loan.
What’s more, a mortgage adviser can help you understand the additional requirements that some lenders may demand and help you put together a strong mortgage application. Get in touch with Mortgage Express today to find out more about applying for a home loan if you’re self-employed.