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How to buy a home when you’re self-employed

How to buy a home when you’re self-employed

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.

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.

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;cancel credit cards that you don’t need (this will affect credit scoring);speak to a credit adviser 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; andask your Mortgage Approved Credit Adviser, rather than a bank. Credit advisers 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.

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When time is of the essence, call an expert

When time is of the essence, call an expert

Sometimes, getting a deal over the line in time requires a conversation with an industry expert.

Late last year, Adam Smith was seeking finance to purchase a share in an investment property with two other investors, and simultaneously trying to secure finance for an investment property he was purchasing on behalf of his wife Louie.

The financial institution he was dealing with was frustrating him and jeopardising his plans; with settlement fast approaching, the valuation was taking too long to be finalised and Martin didn't feel that he was being informed of progress.

On Christmas Eve, Adam contacted his mortgage broker looking for help, hoping to find a solution by the time settlement came around on 10 November.

He needed a fast solution.

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How many types of home loans are there?

How many types of home loans are there?

Hundreds. The key is finding the one that is the right one for you. If you don’t know a lot about the mortgage market you might decide to go with a basic home loan but the loan type and the rate will vary depending on the loan amount and contribution and this is why it's best to speak to a qualified mortgage broker. Here we look at just some of the more common home loan & mortgage options on offer today:

• Basic home loan• Honeymoon loan• Standard variable rate loan• Redraw facility• 100% loan Basic home loan

A basic home loan offers a low but variable interest rate and few or no regular fees. However, there is also limited flexibility. e.g. you may not be able to pay off extra if you get a windfall, or vary your repayments. These loans are normally taken for loans lower than $250,000

A honeymoon rate offers a very low interest rate for an introductory period – generally 12 months. Once the “honeymoon” is over, the interest rate reverts to the higher variable rate . You need to consider the cost of the loan over more than just the honeymoon period, and if any fees are incurred if you refinance after the honeymoon period.You really need to know the revert options on this type of loan.

A standard variable rate loan is a loan product that generally allows you to choose many “bells and whistles”. e.g. a redraw facility, an all-in-one account facility, linked accounts and credit cards etc. Consider the features you need carefully with your Mortgage Broker. These loans under the banks package are probably the most common type of offering as the banks try to win all of your business from credit cards to insurances.

A redraw facility lets you pay off more of your home loan but still allows access to those extra funds if you need to. There wcould well be aminimumredraw amount, it is important to know the amount if keeping all surplus cash in your loan is important to you. There will also typically be a fee for every time you redraw.

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How Parents can help you buy your first home?

How Parents can help you buy your first home?

 

Be nice to your parents.

If you can't save a deposit to get a mortgage or home loan by yourself, maybe your parents, a relative or friend can help with a gift, loan, or home loan guarantee. This could also save you money in lenders mortgage insurance premiums.

Financial help with home loans – parental gifts

Obviously, the best kind of loan is one you don't have to pay back. If someone is willing to give you money to help you buy a home – and doesn't expect it to be repaid – you're very fortunate. But make sure you get it documented. Otherwise your lender will consider it a loan that has to be repaid and therefore you will have a liability to repay that loan back as well and this will impact on your borrowing capacity.

Financial help with home loans – parental loans

Your parents might be able to help you with a deposit for a home loan – but they probably want it repaid. Bad luck. Still, this could be a big help, particularly if they are offering the money at a favourable interest rate. Again, you should have the parental loan documented because your lender will want to know the details in order to calaculate your borrowing capacity.

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When should I contact a mortgage broker?

When should I contact a mortgage broker?

 

 

Are you saving for a home? If you haven’t met with an accredited mortgage broker yet, it may cost you. Here’s why.

 

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