Finding a home loan when you’re self-employed

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Finding a home loan when you’re self-employed

There are many perks to being self-employed, but when it comes to applying for a home loan, it seems being your own boss sends up a red flag to banks and other lenders.  Why? A salaried employee has a regular, steady income and is less likely to experience the cash flow volatility of a small business owner, contractor, entrepreneur, tradesperson or freelancer.

Yet by being proactive and accessing specialist advice, self-employed applicants can also enjoy a successful and hassle-free road to securing a home loan. Try these top tips for starters.

1. Seek expert advice

Trying to navigate the home loan landscape solo may not produce the outcome you desire.  A lending specialist is a good first port of call as they can provide valuable advice around the sort of documentation you will need to have ready before you submit your application.

2. Get your affairs in order

Many lenders will lend to self-employed borrowers who provide their full business financials. This generally includes your personal and business tax returns for the past two years. If you have these documents on hand – and they reveal a fairly consistent income – applying for a loan should be relatively straightforward.

However, the hectic schedule that comes with running your own business means many self-employed borrowers’ tax returns are not up to date. If you have time on your side, consider working with your accountant to lodge your outstanding returns.  If you want to take advantedge of an opportunity quickly, you may wish to explore the option of applying for a lite doc loan which requires less documentation than a traditional loan.

3. Do your homework

Checking your credit history is a good step for anyone applying for a home loan. If you’re self-employed, it’s definitely worth taking the time to make sure your credit history doesn’t include any defaults, errors or too many inquiries – these can hold up your loan application if they are not addressed in advance.

Taking the time to work out exactly how much you’d like to borrow is also a good idea. That way, you can hit the ground running when you meet with your mortgage lending specialist.

4. Think outside the square

While it’s a little more complicated for self-employed borrowers, getting a home loan can be easier than you’d imagined with the lending experts at Mortgage Direct in your corner.

Our success stories speak for themselves.

See Linda’s story:   We were able to provide financing for Linda to renovate her home and provide a separate unit downstairs which improved her property valuation and income.
And she did it so beautifully it was featured in House & Garden magazine.

Be like Linda.    Call us on 1300 360 999.

mortgagedirect client stories review

Want to help your kids buy property? Here’s how.

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Want to help your kids buy property?    Here’s how.

The real estate market can be tough for young adults, but as a parent you may be able to lend a helping hand.    We tell you how.

1. Parent-to-child private loan

A parent-to-child loan is when a parent lends their child money to purchase a property.  This arrangement needs to be documented at the start of the loan period, both parties agree to terms including repayment amounts, a schedule and a process to manage defaults.

  • Benefits: You can set generous terms for your child.
  • Drawbacks: Opportunity for family dispute if arrangements are not adhered to.   There may legal implications for your child if the event of a future relationship breakdown. There are also tax considerations for both parties.

2. P2C loan 

A P2C loan is offered by a financial institution where the parents make an investment and the funds are on lent to the child as a first home loan.  The parents do not need to enter into any arrangement with the child and it protects their home and retirements savings.  All repayments etc are handled by the financial institution.

  • Benefits: You can set generous terms for your child and the arrangement is independantly arranged and managed.
  • Drawbacks:  Few,  child gets the home and parents investment is protected.  There may be legal implications for your child in the event of a future relationship break down.

3. Family guarantee

If your child doesn’t have enough savings for the deposit on a home, you could provide a family guarantee. This is where you use some of the equity in your own home as part of the security. For example, your equity might cover 20% of the security, and your child’s new property would be the other 80%.  This is know as a “Family Guarantee Loan”.

This can be a temporary arrangement until your child has paid down the loan.   Their property can be revalued and your home being used as security is released.

  • Benefits: You have the option of guaranteeing only a portion of the loan.
  • Drawbacks: If your child defaults, your assets can be at risk.

4. Becoming a Co borrower

You can help your child secure a loan if you become a joint applicant. This means you’re equally as responsible as your child for meeting repayments. The lender will consider your assets and income in its lending assessment.  You will both need to mortgagors (owners) on the property.

  • Benefits: Your child can obtain a loan to purchase a property but will not be able to claim the First Home Owner benefits.
  • Drawbacks: If your child stops making repayments, you’re responsible for making them.

5. Gift

When you give your child money but don’t expect it to be repaid, it’s considered a gift. You may need to sign a statement to say it’s a gift, not a loan.

  • Benefits: You can provide financial help, possibly without the legal, tax or financial implications of a formal arrangement.
  • Drawbacks: If your child has a spouse and their relationship breaks down, the former partner could make a claim for the property.

6. Assistance in kind

If you’re risk averse, consider providing assistance in kind; that is, covering some of the expenses that come along with buying a property. You could pay for services such as a property survey or conveyancing fees, or help with stamp duty.

  • Benefits: You can give practical financial assistance.
  • Drawbacks: The amount of money you provide may be more than what your child ends up spending. For example, you might want to contribute $20,000 but the services cost $15,000. In this case, the rest of the amount is subject to the terms of a gift or loan.

Make sure you’re well informed about your options when gifting or lending money so you can remain in the best position to help your child become a home owner.   We’re here to help you make the right decision for your family situation.  Just call us on  1300 360 999.

Save Thousands by Refinancing your Loan

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Save thousands simply by refinancing your loan.

It’s often said that Australians are more likely to divorce their spouse than switch banks. But with plenty of competition in the home loan market, refinancing can be a great move.

There are a number of reasons why you might want to refinance: you can consolidate debt from high-interest credit cards into a home loan with a lower rate of interest; you can release cash from your home loan equity for renovations or other major purchases; or you might want to simply save on your repayments by moving to a loan with a lower interest rate and pay your home off sooner.

What’s my rate?

If you aren’t 100% sure exactly much you’re paying, how can you find a better deal?

Luckily, finding out your interest rate can be as simple as logging on to your bank’s online banking portal and checking the account information for your home loan.

What do I need?

Make a shopping list of the features you want in a new loan. These might include:

  • Consolidate your debts:  refinancing can help you to consolidate debts such as personal loans, car loans or credit card debts to make significant savings which can used to pay off your home loan sooner.
  • Unlock equity in your home: use the funds for renovations and improvements and increase the valuation of your home or use for investments to increase your wealth.
  • Features: your current home loan may not provide the features that you would like in a loan,  e.g. 100% offset account for savings, option for split loans, internet banking, BPAY and direct salary crediting.
  • Variable rate or fixed rate: a fixed rate gives you more certainty over the longer term; a variable rate can save you money when the market is down, but it fluctuates with the market.
  • Repayment flexibility: repaying a loan fortnightly rather than monthly can save thousands. There are 26 fortnights in a year, but only 12 (not 13) calendar months, so you pay the principal off quicker (and therefore pay less interest) when you make fortnightly repayments.
  • Ability to pay the loan out early with no penalty

What’s on offer?

Our home loan specialists will be able to help you choose the type of loan you want, how much you want to borrow and what extra features you need.

We’ll do all the legwork for you, providing you with solutions that cater to your particular financial needs.

Check out the costs of getting out – and getting in

If you took out your loan before 30 June 2011, the lender might be able to charge you an exit fee for terminating early.  And if you’re on a fixed rate mortgage, you might have to pay a break fee.

Some Lenders charge establishment fees and you may find yourself paying package or annual fees.  Some lenders also charge a fee each time you redraw on your loan.

Our Credit Advisers will  do the numbers and they’ll be able to advise you of any and all fees that are involved.

Do the maths

Use an online repayment calculator to work out what the repayments will be for different loan amounts at different interest rates.

Compare the fees and charges, too – these can add up, and may offset any interest rate savings over the life of the loan.

The Australian Security and Investment Commission’s MoneySmart website has a useful mortgage switching calculator that can help you assess the cost of switching your mortgage.

Speaking to MortgageDirect gives you a clear advantage

We have the experience and industry knowledge and will advise the best solution for you,  now and for the future.   Just call us on 1300 360 999

How Much Do I Need for a Home Loan Deposit?

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How Much Do I Need for a Home Loan Deposit?

If you’re feeling overwhelmed at the thought of needing to save 10-20% for a home loan deposit, you’re not alone.   If you have had a stable employment history,  a good rental and savings record  you may only need as little as a 5% deposit, and here’s how…

Taking out Lenders Mortgage Insurance on your loan reduces the lenders risk and allows you to purchase your dream home or investment property sooner.  This can open up many possibilities for you as a new home buyer – better location, larger home, ability to do renovations -simply put,  LMI brings you that much closer to achieving your home ownership dreams.   Unlike traditional insurance products, there is a “one off” premium payable on settlement of your loan.  In some cases you can capitalise the LMI premium to the loan amount.

If you are a first home buyer, here’s a case study that’ll help you.

Case Study: Young Professional

Stephanie graduated from university five years ago and has been working for a law firm in the city. She currently lives at home with three younger siblings and would like to move out and start looking for a place of her own.    While living at home she has been able to save for a deposit and would like to buy rather than rent.

A friend of Stephanie’s recommended she call MortgageDirect who are home loan lending specialists.  She shared with them her ideal home and property aspirations.   They advised Stephanie that using Lenders Mortgage Insurance (LMI) would help her get into her home by allowing her to purchase her new home with a 5% deposit and funds for the LMI premium.  After speaking with MortgageDirect,  Stephanie is confident she can afford to service a loan of $520,500 – while factoring in a buffer against interest rate rises and uncertainties. This means that with her $42,000 savings,  she will be able to buy her first home, a one bedroom apartment for $550,000.

Crunching the numbers

My income is presently $95,000 p.a.
I’ve saved a deposit of $42,000*
I received FHOG of $10,000 and exemption for stamp duty
I used LMI to get a loan for $520,500**
To buy a dream home for $550,000
For a monthly repayment of $2,582  ($595pw)**
Including an LMI cost of  $98pm***

Benefits of LMI
·      Enabled Stephanie to buy her own home years sooner than would have otherwise been possible, entering into the property market with just a 5% deposit
·      Allowed Stephanie to start building her financial security and wealth

To find out how much you could borrow or what your income after tax is, use our calculators, it’s so quick and easy!

*includes 5% deposit and funds for LMI premium
**30-year term, assumed a rate of 4.29% p.a.
***monthly when capitalised to the loan