For many Australians, being their own boss is the dream. There would be no better feeling than calling the shots for themselves, and taking their financial destiny into their own hands.
But while becoming self-employed is a goal for many, one realm where it’s not so desirable is in securing a mortgage. For a number of reasons, home loans for self-employed people can be especially tricky for a lender to assess.
Luckily, Mortgageport specialises in loans for the self-employed. If there’s one thing our many years in the business have taught us, it’s that often the expertise and experience of the mortgage assessor can mean the difference between an approval and a rejection for small business owners.
The challenges of being self-employed
It’s relatively common knowledge that self-employed people tend to have trouble getting hold of the requisite documentation for a home loan. Many small business owners are so busy running their business, they might forget to get their financial information over to their accountant on time to finalise their tax returns. Ultimately, they end up lacking up-to-date financial statements, forcing them to go with a low doc home loan.
However, according to Mortgageport Managing Director Glen Spratt, this isn’t necessarily the biggest obstacle for the self-employed in securing financing. Just as limiting is the fact that the paperwork they do have, may not accurately reflect their financial standing.
When a mortgage manager assesses someone who’s self-employed, Mr Spratt explained in a recent interview, they use the person’s history of earnings to estimate whether or not they will be able to earn enough in the future to afford the loan. But sometimes, past financial statements don’t reflect what’s either happening today or will happen in the future.
“If we were doing a low doc loan for someone today, which is now August 2014, the most recent set of financial figures that you’d expect to have would have finished on the 30th of June 2013,” said Mr Spratt.
“But that financial year started 12 months before that. So part of the financial information that lenders rely on is up to two years old already.”
In addition to this, self-employed people lack a guaranteed income, and lenders can’t look at documents like a pay-slip to see how much money the small business owner is taking home.
Compounding all this is the fact that business financial statements can be difficult to read for someone who’s not a trained accountant. A mortgage broker’s lack of experience can therefore lead a self-employed person to wind up paying more by getting a low doc loan, when they didn’t necessarily need to.
Mortgageport has the right expertise to help small business owners
There are a variety of home loan options for the self-employed and although most lenders require the last two years’ financial statements of a small business owner to assess a home loan, how each lender uses this information varies greatly. Some lenders use the most recent results while others average the two years, along with a variety of other variations.
Whether a self-employed person ends up with a loan more or less advantageous is dependent on their particular circumstances. But it also depends on the skill, experience and expertise of who is assessing the loan and who is giving them advice on the mortgage, so it’s important to choose your mortgage advisor wisely.
This is exactly the kind of financing Mortgageport specialises in. Hundreds of accountant firms refer their clients to Mortgageport regularly for this very reason – could you be next?