Many seasoned business owners are perplexed by how difficult it can be to obtain Self-Employed…
It pays to plan ahead to avoid disappointment, delays, and a lot of frustration when applying for a home loan!
This is even more so in a housing market where supply is constrained, and prices are accelerating.
Even borrowers with an established track record, are often surprised about the amount of information and evidence they need to provide when seeking home finance in today’s market.
If you are not well organised and don’t have all the necessary information available, it will invariably lead to delays and could see opportunities foregone!
I have outlined some tips below that may help make the process easier.
Applying for a Home Loan – How much Equity?
A common question I am often asked by those applying for a home loan is much equity is needed?
Most lenders will require equity of between 10% and 20% of the purchase price.
First home buyers will need to provide Lenders evidence that they have accumulated the deposit in the form of savings through provision of Bank Statements.
If funds are contributed by third parties (e.g., family), a Statutory Declaration stating that the amount is non-repayable will also be required.
If you are borrowing against equity in an existing property, in some circumstances, a sworn valuation may be required to confirm you have sufficient equity.
Applying For a Home Loan – Self Employed
Pay As You Go (PAYG) Income Verification
Significant fluctuations in income for the previous, or future years, will also need to be explained.
Applying for a Home Loan - It Gets Granular!
When applying for a home loan, Lenders will ask you to complete a detailed Monthly Budget as part of the loan application process to demonstrate your ability to service the loan you are seeking.
You will also be asked to provide copies of your last three months’ Bank and Credit Card Statements so that your spending patterns can be confirmed.
It is critical to refer to these Statements when preparing your Monthly Budget, as it is easy to overlook, or under-estimate expenses.
(If you need to change your spending patterns to service the loan, it would be wise to do this in the months before submitting your application, so you can demonstrate that you can afford the repayments).
List of Assets and Liabilities
Unused Credit Cards
The way many Lenders assess credit cards can have a significant impact on what you can potentially borrow.
Even, if you don’t use the card, many Lenders will assume it is fully drawn for servicing purposes. This can significantly impact the amount you will be able to borrow!
If your debt servicing is tight and you don’t need the card, to avoid this becoming an issue, it may be worth cancelling the card in the months before seeking the finance.
Lenders Mortgage Insurance
If you apply for a home loan and your equity or deposit is less than 20%, Lenders Mortgage Insurance will almost certainly be required – adding to your debt servicing costs!
Mortgage insurance premiums range between 1% and 4% of the loan amount.
It is critical to understand that Mortgage Insurance protects the Lender in the event of a default, not you the borrower! You will still be liable for the debt.
Stamp Duty and Fees
Clean Credit History
If anything, adverse exists which is incorrect you can seek to have it reviewed/rectified before you submit your application
As stated earlier many clients are often surprised by the amount of information that is needed to support their application for finance.
That said, understanding the process and with a bit of planning, a lot of delays and frustration can be avoided
If you’d like to learn more about how I can help you apply for a home loan, don’t hesitate to get in touch.