Home Loans: Self-Employed Individuals

April 21, 2012 by  Filed under: Loans 

It used to be difficult finding a lender that would lend money to self-employed people. Many lenders are now more inclined to accept applications for home loans from people that are self-employed. They require that the borrowers are able to show on their tax returns that they have earned a certain amount of money consistently (usually for at least two years).

Depending on the financial institution that you wish to use, different types of loans will be available for you to apply for being self-employed. Figuring out which one is best for your situation is something that you will need to consider before applying for the mortgage.

The most likely option that will be made available for this type of borrower is a “Non-Conforming Home Loan.” Most lenders in Australia don’t have quite as strict criteria restrictions on this type of loan, making it a favorite choice of self-employed people as well as for those who have bad credit. The banks take more of a risk with this type of loan, and the interest rate for this option will be higher than with other choices.

Another common option is a “Low Doc Home Loan.” This is an ideal option for people or small businesses that are unable to provide the financial statements necessary for other types of financial agreements. Usually a specific amount of income isn’t required, but the lender usually does require the borrower to certify that they will be able to make the payments as agreed upon. The biggest drawback for this option is that the lenders do require for the borrower to have a large deposit in the loan or put up equity in another property that they already own. Another negative aspect with this option is that this loan also has a higher interest rate than other options, especially if the amount of money loaned is above 60% of the total price of the property’s value.

The “Low Deposit Home Loan” is the other option available for self-employed individuals. This is a flexible option that only requires a small amount of money for the initial deposit towards the property. Usually only 5% of the purchase price is needed for this option. Applicants do need to have a rather clean credit history and also a stable working history (usually working in the same job for one to two years). Variable or fixed interest rate options and other features are available for this loan, depending on the financial institution used.

Some lenders do allow self-employed individuals to be accepted for other types of mortgages. Not all are so accommodating, so be sure to consult with your bank before deciding on which one is right for you to apply for.

Tomorrow Finance provides tools for home loan comparison from Australia’s best lenders. When you find the best home loan package, you save!

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