Self employed and want to buy a house?
A client of mine was short term self-employed and wanted a home loan to buy a house for himself and his family.
When he first contacted me it was obvious that he was short-on for a deposit and even more short-on for a self-employed history.
So, how can I help with a self employed home loan?
Sometimes the best thing I can do is give people direction or, if you like, “do this and call me when you’ve done it”.
In this case I suggested that he should go and get a low limit Credit Card with a particular well known lender.
Why did I tell him that?
- Because that particular lender will consider his application after he has submitted his first tax return (best it cover as much of 12 months as possible)
- Having a Credit Card with that lender (for at least 6 months) means you are an “existing client” and can borrow 95% plus Mortgage Insurance. Without the Card you can only borrow 90% plus MI.
I also told him that he needed to save as much money as he could to cover his 5% deposit and 5% costs.
Did he do as I suggested?
- He went to the lender and was approved for a Credit Card limit of $10,000!. This is totally un-necessary and impacts dramatically on the amount he can borrow.
- Sometime later he made an application (to the very same lender) via another Broker to purchase a newly constructed home. His application was declined because his income just wasn’t enough to repay the loan, even though the Broker insisted it was! Even I don’t understand this part of the story. It’s not that hard to work out and it should have been glaringly obvious that everyone was wasting their time.
Even further later…there he was on my phone again, bleeding and battered.
He had found another house which needed some work but was within his price bracket and he wanted to know if he could buy it.
His circumstances had changed in that:
- His mother was going to gift him some money.
- They had been saving and now had a reasonable deposit.
- He had submitted his tax return and my calculations (using his taxable income) showed he could afford the loan.
What was the end result?
We made an application to the same lender that had previously declined him, we used his first years’ income, we reduced his Credit Card limit down to a more sensible level and his application was approved without drama.
Moral of the story:
Mortgage Lenders WANT to loan you money. They just need to know you can repay it. Being self employed, you need to demonstrate a history of income and reliability in payments. Then the lender can trust you to repay your home loan.
My job, as a Mortgage Broker, is to help you demonstrate this history and to connect you with the right home loan for you.