Some say it's the ultimate dream to be your boss. You have time for yourself, your hobbies, and so much more. But of course, there are always two sides to a story. While it can be a great thing to be self-employed, it also comes with many challenges. For example, there are quite a few obstacles to overcome when attempting to get a home loan.
Today, we're going to discuss the possible challenges you might face as a self-employed individual trying to get a home loan.
Here's what you need to know:
Qualification Challenges
Getting a home loan is a bit easier for the self-employed if you're well-established in the industry. However, the more significant challenge is just starting your self-employed venture.
What you should focus on is your credit history. As a self-employed individual, this is how you can prove your income and ability to pay back the loan. For those just starting, it might be challenging to prove that you can eventually pay back the loan with your income. Even if you have a steady income, lenders don't have a straightforward way to verify that the income comes from the self-employed industry.
An additional challenge is documentation. Many self-employed individuals don't have the necessary documentation to prove that they are indeed self-employed. A borrower might claim to be a self-employed individual, but there might be no documentation to verify this claim.
How to Address this Challenge
The first thing a borrower has to do is gather the needed documentation. This is often a long and tiresome process, however. For example, you have to go through each receipt and invoice to get information on the work that you have done. If the work is a commission, you have to identify the exact time period of the commission to prove that you have been doing it for a while.
Also, there are record-keeping features that can help you organise your records. For example, you can use an app to track your income from self-employed work. These apps can be your handy dandy tool to prove to the lender that you are indeed self-employed.
Getting Started
As we've discussed, the biggest challenge to overcome when you're self-employed is getting started and proving that you can pay the loan back. But it's not impossible! There are ways to improve your credit profile, gather documentation (if you don't have it yet), and prove that you're a viable candidate to get your dream home loan.
If you're just looking for a quick fix, you can go to a non-traditional lender. Some lenders are willing to work with self-employed individuals, especially if you have a steady income. You can also use your credit history to your advantage. You can improve your score by putting a line of credit on your name. You can do this by opening a credit card. Although this approach might not be ideal, it sure is an effective alternative to getting a home loan.
The Bright Side
Getting a self-employed mortgage loan can be pretty challenging. However, several lenders cater to business owners, especially in the growing economy. For example, Bluestone, Resimac, Pepper Money. These are some lenders that have a tremendous self-employed policies for business owners.
Conclusion
Self-employed individuals have a few more hurdles to cross when getting a home loan. However, it's not impossible to get a home loan. The key is to provide all the necessary documentation to prove that you are self-employed.
If you're passionate about being a self-employed individual and having your own business—you might want to consider talking to a financial advisor to help you with your home loan. A financial advisor can help you with the paperwork and other things related to getting the loan.
Here at Wealthy You, we want to help. We are an Australian mortgage company based in Sydney. We provide our clients with the best service and advice to help them achieve their dream home. Contact us today and discuss with any of our mortgage brokers to get started on your journey!