How To Buy A Home When You’re Self-Employed

27 Aug 2015 | Home Loans

Self-employed borrowers come up against the challenge of not being able to simply present payslips and tax returns to back up their loan applications. But this need not stop you buying your dream home.

Many lenders offer loans for self-employed borrowers who can’t hand over payslips and employment records. This means that, rather than the usual documentation, you prove your ability to service a loan using bank statements, declarations from your accountant and financial records.

Of course, as with any mortgage application, you must still prove that your income outstrips your spending and you can service the loan. Getting this right is more than presenting a lender with a few quick sums on the back of a napkin; it can take a solid six to 12 months of preparation.

Here are some quick tips:

• reduce debt: pay down credit cards and personal loans, and be sure to lower the credit limits as they are paid down, as lenders assess the total credit available to you as a potential debt level, not just the amount you owe;
• reduce credit card limits or cancel credit cards that you don’t need (this will affect credit scoring);
• talk to us about how the structure of your business and your taxable income will impact your ability to borrow;
• do your taxes when you should, and always pay your tax assessments on time;
• save: saving a deposit is obviously important, and showing your ability to live within your means while saving is too. This is key to serviceability – you want to show at least a six-month history of high income and low expenses; and
• using a finance broker, rather than a bank. We have access to specialist lenders that assess applications on a case-by-case basis and tailor their products to self-employed borrowers and contractors, while bank lenders do not.

Loans to the self-employed do differ from standard loans in a few ways, apart from the application process. Lenders offset the extra risk they are taking when lending to a self-employed borrower or contractor by charging slightly higher interest rates and placing some extra rules on loan-to-value ratios (LVR) and insurance requirements.

Some lenders will also insist on an LVR of no more than 80 per cent – meaning that under no circumstances will they lend more than 80 per cent of the property value, as assessed by the lender.

In cases where the loan amount is for more than 60 per cent of the property’s value, some lenders also require self-employed borrowers to pay for lenders’ mortgage insurance.

If you are self-employed talk give us a call on 07 3911 1190 today, to discuss what your options are.

What Is LVR?

20 Aug 2015 | Home Loans

The mortgage industry is a wide, wondrous world with a language all of its own. One of the many acronyms bandied about is ‘LVR’, which stands for ‘loan-to-valuation ratio’. Here’s what it means.

When you are working out what amount you can borrow to purchase a property, the size of deposit you need to save and whether you are eligible for a particular mortgage product, the loan-to-valuation ratio (LVR) is one of the most important considerations.

In the simplest terms, the LVR is the percentage of the property’s value, as assessed by the lender, that your loan equates to. So, if the property you want to purchase is valued at $500,000, and you need to borrow $400,000 to pay for it, the loan is 80 per cent of the property value, making your LVR 80 per cent.

LVR is important because different lenders and loan types have different maximum LVRs, and some lenders will only lend up to a certain LVR for small properties or properties in certain areas.

Most lenders will finance 80 per cent LVR, or higher with lenders’ mortgage insurance (LMI), while alt doc loans may be limited to 60 per cent LVR without LMI.

Still a little confused? Give us a call today on 07 3911 1190 and we can help you understand the language that lenders used.