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In 2021, there were 2.2 million people who were self-employed in Australia. For those independent professionals, what are their options if they want to buy a home? Are you also self-employed and curious (not to mention hopeful) about home ownership?

It can be challenging to get qualified for a home mortgage as a self-employed worker. It’s not out of the cards, though. The good news is there are certain things you can do to improve your chances of getting approved.

Home loans for self-employed professionals can be complex to navigate. That’s why we’ve put this article together to help you. Keep reading to learn more about the best practices for self-employed mortgage loan approval. 

Why Home Loans for Self-Employed Workers Matter

There are many reasons why home loans for self-employed individuals are so important. They allow families to buy homes and invest in their future.

Owning a home provides stability and builds equity. This can be passed down to future generations. It also helps to support the economy by creating jobs and generating revenue for local businesses.

In Australia, home loans for self-employed individuals are still available. Still, they may be more difficult to obtain than in the past. This is due to stricter lending standards and increased documentation requirements.

However, there are still lenders who specialize in home loans for self-employed people. They’ll be more willing to work with them to find a solution that meets their needs.

Understanding the Basics

Home loans for self-employed workers are different from those for traditional employees. Self-employed individuals often have more variable income, for instance. Sometimes it’s a season of feasting, and sometimes, it’s a season of famine.

Self-employed workers can also have different income structures and documentation requirements. This can make it even harder to qualify for a loan.

Traditional employees can provide W-2 forms as proof of income. Self-employed people may need to provide several types of documents such as tax returns. This can be more time-consuming and may require more documentation.

There are different types of home loans available for self-employed individuals, though. These include low-doc loans, high-doc loans, line-of-credit loans, and more.

As expected, low-doc loans require less documentation to verify income, which can be appealing. High-doc loans, though, require things like tax returns and financial statements to verify income. These types of loans may have lower interest rates and fees than low-doc loans.

Line-of-credit loans allow borrowers to withdraw funds up to a predetermined limit. This type of loan can be useful for self-employed individuals who may have irregular cash flow.

Assessing Your Eligibility

Lenders may require self-employed borrowers to provide a full two years of tax records. Or, they might ask for profit and loss statements to verify their income. Lenders also look for steady income over time.

Credit score and credit history requirements for self-employed individuals can vary. This typically depends on the lender and the type of loan.

Generally, a higher credit score can help borrowers qualify for better rates and terms. Lenders also look at credit history to determine if the borrower has a history of paying debts on time.

It’s critical for self-employed individuals to be prepared for the documentation requirements ahead of time. They should organize their financial records and work with a lender who understands their unique situation.

Preparing Your Finances

In essence, self-employed workers should gather everything related to both their personal and professional finances. This could mean documentation of their business and any outstanding debts or liabilities.

They should also consider improving their credit score and history. This can help them qualify for better rates and terms on a home loan. To improve their credit score, they can pay bills on time, keep credit card balances low, and avoid opening new credit accounts.

Saving for a down payment and closing costs is also important. Lenders typically require a down payment of at least 20% of the home’s purchase price.

In some cases, there are loan programs that require less. Closing costs can also be significant, so it’s wise to budget for those as well.

Choosing the Right Lender for a Home Loan

Now, it’s time for the self-employed borrower to research lenders and compare fees. They should shop around as much as they can until they feel comfortable with their options.

Finding lenders who specialize in home loans for self-employed individuals is ideal. These lenders are familiar with the unique income structures and documentation needs.

Reading reviews and getting referrals can also be helpful to find a good lender. Borrowers can read reviews from other customers to get an idea of their experiences with the lender. They can also ask for referrals from friends, family, or business associates. 

The Application Process

Completing the loan application is the next step in the home loan process. Self-employed workers will need to provide information about their income, assets, debts, and employment history.

Working with a loan officer or mortgage broker can be helpful here. They’re more experienced in completing the loan application for success.

These professionals can help borrowers understand the requirements of the application, too. This can help ensure that all necessary documentation is provided.

Navigating the Underwriting Process

Preparing for the underwriting process is also crucial. Underwriting is the process by which a lender evaluates a borrower’s creditworthiness and ability to repay the loan.

Underwriters will look at a self-employed individual’s income over the past two years. In doing so, they’ll evaluate the overall consistency and stability of that income. They may also look at the individual’s business financials and projections.

Closing and Moving Forward 

Congratulations on closing your home! Now, you’ll need to sign the loan documents and pay any closing costs or fees. Then, you’ll transfer ownership of the property to the buyer.

Don’t undervalue making regular mortgage payments and maintaining good credit after this process is finalized. You’ll want to keep prioritizing that healthy credit score for future financial needs.

Finding the Right Home Loan for You

Approved home loans for self-employed professionals can be difficult to acquire. That’s why it’s essential to choose the right lender in the first place. 

We’re here to help self-employed workers just like you. We want to see you approved and moving into the new home that you’ve earned. So, contact us now to learn more about our home loan options that are available to you now.