18 May Tips For Buying A Home When You’re Self-Employed
Being your own boss has a lot of benefits: you get to structure your work environment the way you want it, do the tasks you want to do, and set your own schedule for when things are done. But when it comes to applying for home loans, being your own boss isn’t always seen as a good thing. That’s because banks tend to view self-employed borrowers as a higher risk and usually require them to jump through a few extra hoops. If you’re a self-employed first home buyer looking for home loans NZ wide, here are some tips that may help get your application over the line.
Review your credit score
Your credit score is a vital part of your home loan application. When you apply for credit, lenders usually refer to your credit score to check how well you manage your debt. A higher credit score could mean your home loan application is approved, while a lower credit score could mean it gets declined. Any defaults, missed or late repayments will lower your credit score, while a consistent history of on time and in full repayments will improve it.
Before you apply for a home loan, review your credit score by requesting your free credit report to determine if your credit score is good, bad or normal, and what that means for your home loan application. If your credit score isn’t what it should be, you may need to shelve your home loan plans for a little longer and work at improving your credit score. The best way to do that is to demonstrate responsible borrowing habits. One of our Mortgage Advisers may bring in one of our expert Personal Lending Advisers at Max Loans to assess whether a bad credit loan or debt consolidation loan will help you get on top of your debt and improve your credit score at the same time.
Lower your debt load
Another factor that could impact your ability to secure home loan approval as a self-employed borrower is your debt load – how much existing debt you’re already carrying. The fact is, the less debt you have, the better your chances of success. Because with fewer monthly debt repayments, lenders know that the easier it will be for you to meet your mortgage repayments.
So it’s worthwhile getting your finances in order to strengthen your application. You can do this by paying off the full balance on your credit card each month, consolidating multiple debts into one manageable debt consolidation loan, and paying down personal loans to further reduce your debt load.
Save a larger deposit
As a first home buyer, saving a deposit is just one of the steps in the home buying process. And while most lenders require borrowers hold at least 20 per cent of the purchase price as a deposit, this requirement will be assessed based on the borrower’s individual situation. As a general rule though, the bigger your deposit, the easier it is to negotiate the home loan you want. So it’s worthwhile spending a little longer to save a little more.
Establish a self-employment track record
A strong self-employment track record is essential and necessary to prove your income to lenders and demonstrate your ability to repay your mortgage. After all, lenders will want to feel confident that you can comfortably meet your mortgage repayments on the income you earn as a self-employed business owner.
Most main banks require two years of financial statements to show self-employed income, including balance sheet, profit and loss statement, and cash flow reports, that provide an in-depth track record of your business’ performance. As a freelancer or contractor with seasonal work and cash flow fluctuations, proving income reliability is going to be a challenge, so it’s best to talk to a Mortgage Adviser from Max Mortgages to find out what lending options may be available to you. However, there are plenty of non-banks in the mortgage lending space who do not require any detailed information and are more flexible on their assessment criteria. Working with a reputable firm like Max Mortgages who has access to an extensive panel of bank and non-bank lenders means it is highly likely our Mortgage Advisers will be able to find a solution for you.
And if you’re new to self-employment or just starting out in business, your track record of earnings is going to be a lot shorter, so you may need to provide a cash flow forecast based on your business performance to date, or some proof of future income such as contracts or agreements with customers, or spend a little longer establishing a strong self-employment track record.
Check your options
At Max Mortgages, we understand that not all self-employed borrowers meet lenders’ requirements. But because we work with a wide range of mortgage lenders, some of which offer more flexibility in how income is assessed, we can often match up self-employed borrowers with a suitable lender.
If you’d like to find out more about home loans for self-employed borrowers, or you have questions about managing debt or proving income as a self-employed business owner, get in touch with the team at Max Mortgages.
Contact a Mortgage Adviser
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