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How best to apply for a mortgage when you’re self-employed

When you’re shopping around for a mortgage, do you know who wants to find you the best deal? Mortgage brokers. They want to find you the most affordable mortgage with the best terms for your lifestyle.

To future home buyers who are self-employed– this one’s for you. When you’re self-employed – maybe running your own business, contracting or doing seasonal work – your income fluctuates, and applying for a home loan can seem damn near impossible. We’re here to tell you: it’s not. 

The challenge usually starts when self-employed borrowers need to provide proof of income to support their loan application. You don’t have the luxury of just printing out your payslips, but with a good broker, you can still get the job done. A good broker won’t just know which lenders to approach, they’ll approach the right lenders based on your needs as a self-employed borrower, and they’ll know how best to prepare your application. 

There are several ways you can improve your chances of securing a home loan with a bank or non-bank lender. 

Gather proof of your financial history

Lenders generally decide on how much you can borrow based on what you earn. For those who work for themselves, that usually looks like an average of the past two years’ income. Most banks want to see financial history from at least two years in your current business or freelancing venture – but not all. Some, like Westpac, only require 12 months, and some banks may take into consideration evidence that you have future work lined up, or a track record of regular work. But all of this, of course, needs proof. Your mortgage broker will work with you to understand what info you’ll need to gather up, and how best to present it.

Get your books in order

Interest rates change, and the housing market in NZ is uncertain at the moment. Do you lock in five-year fixed term, or go for a floating rate? A mortgage broker has one job: to find you the best deal. Brokers know who offers what deals right now, and can predict interest rate changes, OCR increases and what the housing market is going to do. 

It’s crucial you get your books in order. When you’re self-employed, lenders not only look at your personal financial history but your business’s financial history as well. Banks want to lend you money – but they also want to make sure you’ll be able to manage the loan. A mortgage broker can help you gather and prepare the business information you need to show the lenders you’re a safe bet. Include things like getting a cashflow forecast prepared to show where your business is headed, outlining your home office expenses separately so the bank doesn’t double-up on those, and putting together background information on your experience in your industry. Proving you are experienced and have established a successful career for yourself will give you a great advantage.

Hot tip: things can move quickly when applying for a home loan, so giving your broker direct access to your accountant will be the ultimate time-saver.

Consider a non-bank lender 

If you’ve recently made the shift to self-employment – less than 12 months – consider approaching a non-bank lender. Several non-bank lenders offer more flexibility in the way they assess income. A low-doc (low-documentation) home loan might only need six months’ worth of bank statements rather than a bank’s two-year policy. These lenders may require less documentation, but the trade-off is that you’ll pay slightly higher interest rates and fees. They’re a good way to get into a home, until you have enough financial history to approach the banks. A mortgage broker will be able to advise you on which non-lenders will suit you best.

Apply with a guarantor

Over the past couple of years, it’s become way more difficult for first home-buyers to get a home loan. Applying with a guarantor – who offers up their own assets as collateral for the loan – has become a popular way for first home-buyers to get themselves on the property ladder (thanks, Mum and Dad!). A word of caution here – acting as a guarantor is a big commitment, especially if you, as the primary lender, are unable to meet your loan repayments. Talk this option through with your mortgage broker – there are things you can do to safeguard you and your guarantor.

Consider a joint application 

Traditionally, you’d buy your first home with your significant other, but since we’re in the 21st century and all, you can look at other home-buying partnerships too – your sibling, another family member or a friend, for example. If you’re looking to buy a home on your own, it can often feel like the odds are stacked against you, so applying for a joint home loan means you share the responsibility equally with someone else. It’s a great way of helping each other onto the property ladder, but it’s also important you both understand what your expectations are for the future of the property, and what your responsibilities are, particularly if something goes wrong. 

Make sure you have a decent deposit

Whether you’re self-employed or not, having a decent deposit will always make applying for a mortgage less challenging. The more deposit you can save, the less risky the banks will consider you, and the less weight they’ll put on your income. A deposit of at least 20% is good, but having more is ideal.

How best to apply for a mortgage when you’re self-employed

If you’re having problems getting the mortgage you need, a broker can help. Often, your best option may not even be a bank. When a bank says no, sometimes a reputable alternate provider will say yes. A mortgage broker will know where to turn so you get the funds you need, and at reasonable terms. 

Just because you’re self-employed, doesn’t mean your dream home can’t be a reality. Make sure the mortgage broker you work with understands your needs and what you can manage comfortably. They should also understand the finer details of each lender’s policy, so you know you’re getting the best advice possible.  

Are you self-employed and looking to purchase your dream home? Call the team at Float Mortgages today and we can talk you through your options.

You can trust your BFF broker

About 40% of all mortgages in New Zealand are arranged by a broker, and this number increases every year. Of that number, about 51% of users were very happy with the service they got – great deals on their mortgages and value from the transactions.

It’s obvious why people are so satisfied with their brokers – saving time and money makes for happy customers. So even if you think your bank will fall over itself to look after you, it’s worth approaching a broker to see if you can get an even better option.

Give Float a call. We can chat about what you’re looking for, how we can help you get what you want, and what forms we can fill out for you!