Most banks view self-employed home loan seekers as high risk and as a result would only offer them a 90% and not the full 100% bond, says Olen Sterling, mortgage expert at Property Loans.
Sterling says affordability is a big key factor, and as such applicants will have toprove to the bank that they have sufficient disposable income available each month to afford the monthly bond repayment. “A clear credit record is a must; a negative record will not be treated favourably.”
She says self-employed home loan seekers must ensure that their business financial records are up to date and that they employ the services of a reputable accountant to assist with drafting their financial records on a yearly basis.
Most banks view self-employed home loan seekers as high risk and as a result would only offer them a 90 % and not the full 100 % bond, says Olen Sterling, mortgage expert at Property Loans.
“Each month you can draw a salary for yourself into a personal bank account so that the bank can clearly trace your own personal drawings from the business. This will be used as the basis to determine your affordability for the home loan you are applying for,” Sterling advises.
Asked about the success rate of self-employed home loan applicants, Sterling says it depends on each business’ financial standing.
As a mortgage consultant, she would conduct an upfront interview prior to the applicant applying for the bond and ensure that all the minimum criteria are met before she lodges an official application at the banks. This includes an upfront credit check to cover the basic credit score requirement.
But she says it’s difficult to provide pre-approval for a self employed applicant, since their income varies on a month to month basis, however the recent annual turnover and business profit incurred would give them a clear indication of whether the applicant will be considered favourably or not.
“If the business financials reflect a positive financial standing, and we can trace the turnover in the bank account records, there is a good chance of the application being granted. If the declared income doesn’t match up with the business financial records and bank statements, there will be very little we could go on to convince the bank otherwise.”
Here are a few requirements for securing a home loan for any self employed applicant:
The key factors that the bank will look at when assessing the financial and banking records:
Overall, the business needs to reflect a positive financial position and steady growth over the three year period.
The most recent personal tax return accompanying the signed employment contract and a six month record of salary payments would be needed for assessment purposes.
While each application is assessed according to its own merit of course, it’s also easier to secure finance through a bank where the business banking portfolio is held.