If you’re self-employed, you may find that your best option is to choose a low doc home loan. These loans are specifically designed to accommodate individuals who don’t have the kind of documentation and certainty provided by an employer. Unfortunately, they can also carry a higher interest rate than other options. If you’re able to show a lender that you have your income in order, you may be able to secure a standard mortgage at a lower rate.
When you’re working for someone else, it’s very easy for a potential lender to assess your income and your eligibility for a loan. When you’re working for yourself, the onus is on you to crunch those numbers and provide the appropriate information. Before you approach mortgage providers, work out exactly what your income is.
It’s not enough for you to tell your potential lender what you make; you need to prove it too. Collect as much evidence of your spending power as you can, including bank statements, financial statements and accountant declarations. You’ll also need to be able to show your two most recent personal tax returns. If there is a big difference between them, be aware that the lender is likely to take the lower of the figures, even if it’s not the more recent one. If this is the case, ask your broker to consider any special circumstances – for example, did you spend money on equipment or training that year?
There are also other ways for you to make sure you look good on paper. Search for ways you can reduce your credit debt or store cards and work at building a history of low expenses and high income – and keep it up for at least six months – to make yourself a more attractive prospect.
When you’re self-employed, it’s only natural that you’ll want to look for ways to lower your tax – but this could work against you when you apply for a mortgage. Lenders might look at a very low taxable income and think you won’t be able to meet your monthly payments. If you’re struggling to secure a mortgage, it might be worth thinking about paying more tax in the short term to enjoy the long-term benefits of investing in property.
It may take a little more in the way of preparation, but securing a mortgage while self-employed is entirely possible and a great way to invest in your future. Remember to consult an expert when you are ready to apply for a home loan.