Apr 17 2020

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Tags: home loans  home mortgages  self employed  buying home 

How To Buy A Home When Self Employed
Securing a mortgage home loan to buy that dream home!

The process of securing a home loan can be a stressful and difficult process for anybody, but when you are self employed the process of obtaining a home mortgage can become even more difficult.

Considering that purchasing a residential property is probably the single, largest investment most people are ever most likely to make, it goes without saying that most buyers would need to secure a mortgage or home loan to achieve this.

However, self employed individuals should not give up so quickly because obtaining that home loan is actually possible - they simply need to jump through more hoops and provide extra paperwork than the average person on the company payroll.

How to improve your chances of getting a mortgage when self employed?

To improve your chances, we have outlined a few steps you should follow, which will help simplify the mortgage application process and help you become an attractive candidate to lenders.

1. Providing Proof of Income

Providing the lender proof of stable income is the most important aspect that lenders will insist on, when considering borrowing money to any mortgage candidate.

For an employee of a company, providing a recent pay slip may serve as sufficient proof of income. However, because the income of a self employed individual tends to fluctuate from month to month, most lenders become concerned that their income may not be stable enough to make the monthly bond repayments and are deemed to be risky.

Therefore, it is advised that all candidates keep the following documentation handy and up to date:

1.1. A profit and loss statement and balance sheet of your business from the last 3 months - preferably audited by a certified accountant.

1.2. Personal income tax returns from the last 2 tax years.

1.3. A copy of your business license or a certified letter from your accountant to confirm that your business has been operational for at least 2 years.

1.4. A certified copy of your ID document or smart card.


2. Keeping a Healthy Credit Score

Self-employed borrowers will naturally attract higher interest rates on their mortgage loans, but making sure that you have a high credit score is critical when applying for a home mortgage, especially if you are self employed.

If you have a high credit score, you will be seen a lesser risk to lenders and have a greater chance of being approved.

3. Providing a Large Down Payment

Lenders see self employed borrowers less of a risk when their equity investment is larger than usual. In other words, if you are able to put a large sum of money down as an 'up front' payment on the property you want to purchase, the less likely you will be to abandon payment on it and therefore your chances of securing the home loan is greatly increased.

4. Having a Large Cash Flow Reserve

Banks and other lenders want to know that should your business experiences times of financial difficulty, you will still be able to keep up with your mortgage repayments. Therefore if you have an available emergency cash fund reserve to prove to the lender that you will not default on your payments - that will also go a long way in helping to secure your home loan.

5. Becoming Debt Free

It goes without saying that if you have fewer monthly debts, the easier it will be for you to make your mortgage repayments. If you are able to pay off all your credit cards, car loans and other debts, the bank may even consider offering you a higher bond amount because of your available cash flow position.

Looking to invest in coastal, residential real estate?


Conclusion:

Whether you are a small business owner, a contractor or a freelancer - you should be able to successfully apply for a home loan or mortgage bond if you are able to apply most of the steps discussed in this article. If you can provide proof of a continuous, steady income, being self employed should not stop you from becoming the owner of your dream home.

Related Article: A Buyer's Guide to Home Ownership

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