Blog post courtesy of Peta Stewart Conveyancing
If you are self-employed and looking to buy your own home the task may seem daunting, if not impossible. As a freelancer proving your income when applying for a loan is a challenge, especially if you work in a creative industry or situations where payments are seasonal or contractual. You know you can make the loan repayments, but convincing a lending agent is another story.
If it feels like you are on your own and jumping through hoops solo, take heart in knowing there are many people just like you, around two-million to be more precise. Independent contractors make up at 17per cent of the workforce in Australia, so there is a big market of people who have irregular incomes but are capable of living regular lives and many of them have achieved success before you, and are happily settled in their own home, without the financial support of family members or partners.
Here are some tips on how to go about buying a home if you’re self-employed.
Having savings in the bank. Put funds aside during peak income to use during those quiet periods and manage your money consistently all year round. This ability to save and manage money wisely is going to be the silver lining when it coms to home loan applications.
Typically home loan lenders will look back over two years of your income, expenses and tax returns. If you have only recently become a freelancer you may have a number of start-up costs in those two years that outweigh your income. Wait until the two years you present are strong ones. The higher your income, the better your loan capacity will be. In the meantime, keep saving.
Showing that you look after your income and expenses is important. That means you lodge your tax returns on time (both business and personal) and take these documents as well as business financial statements and ATO Notices Of Assessment with you to your loan meeting.
Have the deposit amount in full to show you are committed to owning your own home well before you start looking for your new home. Once you have everything you need (the income to make loan repayments and a healthy deposit), then you can start house hunting. Paying a larger than minimum deposit will also help enforce your ability to save and handle your finances as well as cut down your loan amount.
Chase high paying jobs
If you are serious about owning your own home then you need to look at the jobs in your industry that pay higher or are more consistent. Cheap jobs might be easier to get but you will have to do a lot more of them to get a good income. By going the extra mile and canvassing work that is more elite you can achieve more income for fewer hours, giving you more control and flexibility.
Know your budget early
Before you get your heart set on a particular home speak to a lender or broker.
The earlier you start the process of determining your loan amount the sooner you can start looking for the right properties, instead of wasting time and energy searching homes that turn out to be out of your reach.
You might need to reposition your goal to suit both the current market trends and your budget. How much you can borrow will influence what you can buy and where. While you might initially plan to own a small unit in the city hub, you might be better off buying in regional areas where you can enjoy a more relaxed lifestyle and have a bigger home that will suit your needs for longer, for the same price.
Learn how to repay your loan faster
Making your loan repayments on time every month might actually be costing you in interest. Cut down on the size of your loan by decreasing the interest and making repayments early and repaying above the set minimum. Over the course of a few years these differences really add up.