Buying a home when self-employed

Title: Buying a home when self-employed Word Count: 556 Author: Tracey Anderson Email: tracey_anderson@mortgagemall.com.au Article URL: www.submityourarticle.com/articles/easypublish.php?art_id=5815

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Buying a home when self-employed Copyright 2006 Tracey Anderson

Small businesses and self-employed individuals are what drives much of the Australian economy, yet self-employed home buyers face unique challenges when trying to qualify for a mortgage. In particular, the paperwork requirements are typically substantial, since self-employed persons do not have the same easy proof of income others do. When you work for somebody else, simply bringing in a check stub or statement from your employer is proof enough, but if you are self-employed, this isn't a possibility. Lenders must guard against fraud, and protect themselves against self-employed borrowers who overstate their income. This is why lenders will either require either an almost unmanageable amount of paperwork and verification, or a significantly higher than average down payment. Also, stated taxable income is often kept to a minimum as self-employed persons and their accountants take advantage of every deduction possible. Self-employed persons may also find it difficult, or even impossible, to separate their personal and business finances. If they have not been self-employed for a long time, up-to-date financial statements may not yet be available.

Banks have become more willing to work with self-employed individuals, and recognize that many such persons earn incomes far above the national average. Median self-employed incomes vary by state, but as an example, a PayScale survey (www.payscale.com/salary-survey/aid-9542/raname-SALAR Y/fid-7636) reports that the average self-employment income in the ACT is $46,633.

Fortunately, many lenders have special programs that offer a simpler option for self-employed individuals. Low documentation loans are specifically designed for those borrowers who find it difficult, because of reasons of self-employment, to comply with the usual requirements for income verification. A low documentation loan requires a borrower to complete a declaration of their financial situation. The declaration is a simple form which allows the borrower to make a statement regarding their income, without having to provide evidence. Good credit and a high down payment is usually required to obtain a low documentation loan. Because there is a high down payment requirement, lenders mortgage insurance will typically not be required.

While there are many mortgage products in Australia that require just ten percent down, a low documentation loan will usually require the borrower to have a substantial equity stake, in some cases 40 percent or higher. If you qualify for the First Home Owner Grant (www.firsthome.gov.au) however, some banks may be willing to count this grant towards the down payment. National Australia Bank (www.mortgagemall.com.au/national_bank_home_loans.htm l) was one of the first banks to start offering low-documentation loans to self-employed borrowers, offering a package that does not penalize self-employed individuals with higher fees and interest. NAB's low-documentation loan product comes in the same variations as any other standard loan, and you can choose from fixed and variable interest rate options.

Some sub-prime lenders, such as Liberty Financial (www.liberty.com.au), also provide low-documentation loans for self-employed. Liberty's Nova program is designed specifically for self-employed borrowers, and it also includes a Jumbo option for high net worth self-employed persons, offering loans up to $10 million.

Although most lenders do require a significantly higher than average down payment, in some circumstances, you may be able to find a low-documentation loan for as little as 20 percent down payment.

About the Author:

Tracey Anderson is a mortgage broker with 16 years experience in the Australian mortgage industry. For personalised information from leading independent brokers, visit www.mortgagemall.com.au