It is a great feeling to be your own boss, to be a person of your own making. One can say it is much like the feeling of owning a house because in essence they both share the satisfaction of watching your life fall in to order.
However, it is only when you decide to become both, your own boss and the owner of a home, is when things can get a little complicated. This is simply because banks require a minimum of 2-3 years of financial data from a self-employed applicant before they can assess the stability of their cash flow and their ability to meet their repayment obligations.
It is because of such factors that self-employed borrowers can find themselves lost in questions like-what documents do I need if I am a first home owner? How will the lender check or view my tax returns? What will help increase my chances and how do I gain their confidence in my ability to make the repayments?
So, hold your breath because Nfinity Financials is going to dive straight into the answers to these questions and help you determine the best approach for a mortgage as a self-employed applicant.
HOW LENDERS APPROACH YOUR APPLICATION
Financial institutions, lenders, and banks of all kinds and all alike not only have different documentation requirements depending on if you’re a company, trust, partnership, or sole trader but also each has its own way of interpreting them. Some lenders may even ask for interim financial reports or cash flow projections, depending on the nature of your business and the risk of your application.
All documents related to your finances and your tax returns ultimately serve as fortune cookies to a lender. By looking at them they try to predict the stability of your business and in turn judge your repayment ability for the foreseeable future. So, if the fluctuations have been drastically low or high they might be wary of your application.
One lender may use the lowest of the income figures for the last two years. Another may use the most recent year’s income as shown on your tax return. They may or may not then add back expenses shown on your returns.
As you can imagine this makes a big difference to your loan application! More importantly, every lender will interpret your tax returns differently and may look at your skills as an entrepreneur, your experience in the industry, and the risk profile of your industry to determine how to assess your income and in turn your mortgage application.
THE 4 STEP APPROACH FOR SELF EMPLOYED LOANS
The mortgage process for a self-employed borrower, although a bit different for documentation, is by no means impossible. However, what it can be is confusing, that is if you are not prepared. So, here are some ways to help you do just that-
A lender, a bank, or any financial institution at the end of the day has the desire to approve your loan application, as active loans are the biggest source of revenue for them. So, when going through a loan application a lender is not looking for pointers that will make them reject the application but instead are looking for documents that will build confidence in them towards your ability to meet your future mortgage obligations for your first home owner loan.
Hence for a self-employed applicant, the approach should be to attach documents that showcase you have been self-employed for a steady period, are doing well with your finances and can maintain a steady flow of income.
Nfinity Financials can not only help you sort out the documents that will reinstate confidence in lenders but also help you identify the lender which matches your requirements and objectives, that will improve your chances drastically.
It is vital that you are as transparent with the daily statistics of your business as possible when applying for a loan. Displaying proper documentation of the various ups and downs in your business from the very beginning of acquiring your loan helps the lenders determine the best loan type for your application. Showing all of the profits and losses and the fluctuations in your taxable income every year enables a lender to entrust your repayment abilities. Our mortgage brokers at Nfinity financials can suggest the most viable loan options as per your requirements before you even approach the lenders to help you better prepare.
Taxable income can be a big hurdle to face for self-employed individuals and small business owners. You need to think about how your business statements will directly affect your future borrowing options. This is where getting help from a professional such as the ones at Nfinity Financials about your objectives when working out your taxable income can be very beneficial. Without proper documentation of taxable income, it becomes more than difficult for you to show your cash flow and for the lender to determine its stability. Hence, it is crucial that you have updated and documented receipts, tax returns, and bank statements that create a clear path of your cash flow.
CASH FLOW SMART
It’s all about planning and preparing. Using a financial plan to make the best of your cash flow can be helpful for self-employed people. It will positively impact your cash flow if you can pay off any outstanding debts such as credit cards or personal loans. Lenders will look favorably on this behavior. Nfinity financials can look into your spending or financial documents and help you identify and prioritize the expenses or debts that need your attention.
LOW DOC LOAN- THE APPROACHABLE OPTIONS
A low doc loan as the name suggests is a type of loan that is not document-heavy and can be in certain cases a lifesaver for a self-employed applicant. As a loan, it is designed to primarily help those applicants who have the money to meet their repayment obligations and the deposit but do not necessarily have the paperwork to show their finances.
A bank will still need to be confident in your ability to make the repayments so they will still need you to provide some evidence of your income. To accomplish this they may ask you for a letter from your accountant verifying your income, the past two years’ tax returns, your business activity statement for the last 12 months, Business bank statements, and or your interim financial statements.
In addition to these documents, you will need to provide some basic information about your business, such as its name, ABN, and GST details. Although most lenders don’t charge a higher rate for low doc loans they may charge you Lenders Mortgage Insurance (LMI) as a one-off fee when the loan is set up.
The road to mortgage as a self employed applicant can be a confusing one but not a difficult one. However with Nfinity Financials it doesn’t have to be confusing as well. We can help you right from the initial stages of your planning and preparation till the very end of your settlement creating a straight line between you and your dream home.