Prepping to Apply? Here’s How it Helps

If you’re self-employed or working as a contractor, you might find yourself jumping over a few more hurdles to get that home loan. This is mostly because you will have to provide considerable documentation to show that your income is consistent and your business is stable with potential for growth.

Some loan providers will not look at self-employed borrowers, others, like ourselves, will have specialised products for them, and some will offer standard loans with or without special terms. It can be a lot to take in. 

Because of all this, it’s important to start preparing for that home loan long before you would like to actually apply.

So what do you do to get prepped for a loan application?

Being your own boss can be great, but we all know it takes a lot of hard work, both in and out of the office, the worksite, or the living room – you’ve got to put in the hours. 

When it comes to applying for a home loan, it’s no different. You’ve got to:

  • get your business and personal finances under control and well documented; 
  • get your paperwork sorted;
  • get your head around what it is that a lender really looks for in a loan application; and
  • do what feels like a million other things at the same time.

Let’s take a look at some things you can do to prepare for that self-employed loan application. 

Avoid ‘low doc’ loans

These types of loans need less documentation up-front but usually have higher interest rates and more restrictive terms. Even if you have to wait a while, the more detailed and relevant documentation you can provide, the more likely it becomes that you will be able to access the best possible home loan. There’s no reason someone who’s self employed can’t access a standard home loan with the right application and expert guidance. 

Build your ‘serviceability’

This is the amount of money you have left when your expenses are subtracted from your monthly expenses. Obviously, the larger this is the better lenders will view your loan.

Eliminate your debt

Try to eliminate or reduce your consumer debt as much as possible. This might include paying off or reducing the limit on your credit cards, as well as any other payments you have in place.

Show you can save

Building up a savings history shows you can control your income and will be able to have funds for unexpected situations.

Keep your tax up to date 

Keeping your tax up to date lets you show your most recent income history. Make sure your tax assessments are lodged and paid so nothing shows up when the lender checks.

Understand your business structure 

There are different ways to structure your business and it’s worth checking spending some time seeking expert guidance about your options to ensure your taxable income is not going to make it difficult to get a home loan.

Have a business plan 

It seems obvious, but having a business plan for the next 3-5 years can help you identify business and finance strategies that will work best for you and help the lender understand your financial capacity.

Be proactive with your business finances 

For example, can you put your GST payments somewhere to gain interest? It may be worth checking in with a financial advisor to see what finance strategies might work for you. Every dollar that works for you gets you closer to that home loan goal.

Have a loan strategy in place 

It’s often worth consulting financial advisors and mortgage brokers to help construct steps towards achieving your loan. Their expert advice can help you build your serviceability well before you may actually apply for a loan.

Get your information ready 

You will need any employment details, asset details, business accounts and tax returns as well as your savings information and credit details. You will also need business documentation such as your ABN, BAS,  GST registration and include any add backs into your financial details.

Build a positive record 

Every time you make repayments, reduce debt, or take any other financially positive step you are building a positive record that any new or current lenders will be interested in seeing. As well, once you have a mortgage in place, if you build a positive record you are in a better place to consolidate debt or refinance to a better loan.

Be open and honest 

Ultimately it’s going to be easier to be honest and share the most accurate information you can with your broker or lender. They are required to look for the loan that works for you and to check any documents you provide or things you say. The more open you are, the more likely you are to avoid any legal issues or end up with a loan that is not right for you.

Looking for a simple solution to your finances? Tradie Loans will get your sorted.

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