Are you self employed, work as a contractor, or rely heavily on seasonal work as your main source of income?
Not everyone has a full time job with steady income hitting their pockets each week, therefore applying for a home loan can be a challenge. Luckily mortgage brokers have a lot of experience with customers that are self employed and want to borrow for buying a new home. There is no denying it, being your own boss has its perks, however you may find that this is not the case as your situation may not fit the bank's mould when it comes to assessing a home loan application. The reason for this is because most banks need to see up to a 24 month trading history including IRD income tax returns.
Feeling worried? Don't be, it isn't all bad news. Depending on your situation there are a few options to consider and the best plan of attack is to talk directly to a mortgage broker.
Here are the top 3 questions our advisors get asked from our self employed customers:
1. I HAVE A DEPOSIT - WILL THIS HELP?
Whether you’re self-employed or on PAYE, borrowers will require a deposit toward your home purchase. As a general rule, most banks ideally require a 20% contribution from you. This usually comes from savings, sale of an asset, previous equity in another property, or in some cases we can include a gift from Mum and Dad. The value of your business does not typically qualify as equity toward the home purchase. If you don’t quite have the 20% deposit yet, talking with you mortgage broker can still help with a number of other finance options.
2. HOW IS MY INCOME ASSESSED BY THE BANK?
This varies depending on the credit policy of each Bank, and how long you’ve been in business for. Some Banks calculate your income based on shareholder’s drawings/wages, whilst others will also allow for depreciation and interest costs to be added onto this. There are many variables, and you may find your existing Bank is not as flexible as others. That’s why it’s so valuable to seek a trusted Mortgage Advisor to do the work for you (free of charge !) and find the very best solution that suits your needs.
3. WHAT CAN A MORTGAGE BROKER DO THAT MY BANK MANAGER CAN'T?
Mortgage advisors (otherwise known as mortgage brokers) have a depth of experience with small and medium sized businesses. A broker will either liaise with your current bank or find the best solution for you to make the process painless, fast and easy.
Many of our self-employed clients choose to use a trusted Mortgage Broker. They often tell us of the many frustrations they can experience when going directly to their Bank, and our readers might relate to some of these:
“I don’t know if I’ve even got a relationship manager at the Bank, let alone who it is – that’s ironic”
“She told me she’s managing 300 other business accounts and can’t get to my request for at least a week”
“He’s away on holiday for a fortnight & nobody else seems to know what to do”
“The Branch staff often don’t have the skills, & I don’t want to deal with some Business Manager by phone”
It's not that banks specifically dislike self-employed customers, but it does take more time and effort to work through a loan application than someone on PAYE. Self-employed clients usually have good Accountants who try to minimise income for IRD purposes, but this can present challenges for the Bank. Our Mortgage Advisors have a depth of experience with small/medium sized businesses.
We quickly understand your financial requirements and impacts on Balance Sheet, P&L, etc...
We will liaise with your accountant where necessary to determine best loan structures
We put together and present a tailored borrowing proposition for the lender to assess
The lender can make an informed (quick!) decision - we've done all the work for them
Stephanie Murray Mortgages are available at a time and place that suit you for a free no obligation chat. Contact Us Today
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This information is general information only and must not be relied upon as legal advice. A disclosure statement is available here.