How To Compare Self-Employed Mortgages
When you start looking at self-employed home loans, it won’t be long before you’re trying to compare the terms and rates you can get. Understanding what influences the rate could help you make sure you’re getting the best deal, so we’ve written this guide to help make things clearer.
Get a complete understanding of how to compare self-employed mortgages or click a link to jump to the info you really want:
Read on or click a link to jump ahead:
Save time and money with an expert who specialises in cases like yours
[/vc_column_text][vc_row_inner][vc_column_inner width=”1/3″][/vc_column_inner][vc_column_inner width=”1/3″][tek_button button_text=”Get Started” button_link=”url:https%3A%2F%2Fwww.onlinemoneyadvisor.com.au%2Fcontact-us%2F|||” button_position=”button-center”][/vc_column_inner][vc_column_inner width=”1/3″][/vc_column_inner][/vc_row_inner][vc_empty_space][vc_separator color=”purple”][vc_empty_space][/vc_column][/vc_row][vc_row full_width=”stretch_row”][vc_column offset=”vc_hidden-lg vc_hidden-md”][vc_separator color=”purple”][tek_calltoaction cta_icon_type=”no_icon” cta_title=”We’ll match you with your perfect mortgage broker” cta_subtitle=”Save time & money with an expert who specialises in cases like yours.” cta_text_color=”#000000″ cta_button_link=”url:https%3A%2F%2Fwww.onlinemoneyadvisor.com.au%2Fcontact-us%2F|||” cta_button_text=”Get Started”][vc_empty_space height=”50px”][vc_separator color=”purple”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]How do you compare self-employed mortgages?
The rates available on self-employed home loans will vary depending on your specific circumstances. To qualify for the very best rates you will need to have at least two years of certified tax returns, financial statements and your tax assessment statement. Armed with all of these documents to support your mortgage application will stand you in good stead.
If you haven’t been self-employed for two years or more and don’t have all the required paperwork, you may find it harder to find a lender who will lend to you at such a competitive rate.
Lenders like to have certainty that a buyer has the capacity to afford the monthly mortgage payments and still have enough left over for daily life. Which is why they prefer to see full financial documents when lending to self-employed borrowers.
It’s still possible to get a home loan without complete documentation, but you may find the lenders you can approach are more limited. Therefore, it’s likely you will need a higher deposit to offset the potential risk.
If you have all your financial records to hand, at least 5% deposit, meet a lender’s criteria and affordability test there’s little reason why you couldn’t qualify for the same sort of rates a PAYG employee could get. If, on the other hand, you aren’t in such a strong position, comparing the rates you might get will be less straightforward.
How much could you borrow?
This will depend on how long you’ve been self-employed and how much financial paperwork you have to support your application.
As a rule of thumb, you should be able to borrow:
- Up to 95% of the property value with two years of tax returns
- 80% of the property value if you’ve been self-employed for under a year
- 85% – 90% of the property value if you have very little or no income verification as a low-doc loan
If you only have accounts for one year, it may be tempting to borrow more through a low doc loan, but when you compare the rates you might think twice!
How do rates compare if I only have one year of accounts?
With only one year of self-employed financial accounts, most lenders will limit the amount you can borrow, so you will need a minimum deposit of 20% ready to put down.
With your deposit in hand there are other things you could do to ensure you get the best available rate, and make up for your lack of paperwork. Doing all, or some, of these things could help strengthen your home loan application:
- Cut back on regular expenditure in the months prior to applying for a loan; lenders judge your living expenses based on three months’ spending. If you can, curb your spending in the months leading up to an application
- Discipline yourself and stick to a budget; this will help to streamline any potential ‘lumpy’ cash flow and should help safeguard your finances during months where your income is lower
- Keep your business structure simple; if a lender doesn’t have to work to figure out how you earn your income, this will play in your favour
- Keep on top of your financial records and business expenses
- No matter what your employment status, lenders love to see strong evidence of income and get a clear picture of a borrower’s living costs. Anything you can do to help a lender understand your income and how you manage your money will stand you in good stead when it comes to applying for your home loan
To find out what kind of rates you could get with a 20% deposit and one year of accounts, make an enquiry for a free, no-obligation chat and we’ll connect you to one of the brokers we work with.
With a clear understanding of all your financial circumstances, an expert broker will be able to present you with the lenders you could apply to and help give you a good idea of what rates you could achieve based on the information you have and the level of risk a lender may consider you pose.
How do self-employed mortgages with accounts compare to low doc mortgage rates?
If you’re self-employed with accounts you’re almost certainly going to be better off with a regular self-employed home loan than you would be by going down the low doc road.
Low doc home loans can work out to be a whole lot more expensive than self-employed mortgages because of the interest rates that are usually applied, but also due to the additional cost of Lender’s Mortgage Insurance or LMI.
Lender’s Mortgage Insurance
LMI protects and, potentially, benefits the lender. By reducing their risk, LMI can allow lenders to lend larger sums of borrowing and approve more applications. If you apply for a self-employed mortgage you may be asked to take out LMI. This can usually be paid upfront or added to your home loan.
Premiums you pay on LMI are non-refundable so if you switch your loan to another provider, you won’t necessarily be able to transfer your LMI. This may cause you to have to pay for a new policy with the new lender, unless your circumstances mean LMI is no longer required by the new lender.
When you apply for a low doc loan the LMI premiums are likely to far outweigh LMI premiums for most other types of home loan. This is because your employment status can affect the perceived risk of lending to you and therefore influence the price you need to pay to protect that risk.
Watch out for increased costs and rates on low doc loans
If you don’t have the accounts required for a self-employed home loan, make sure you do the math before you jump into a low doc home loan. The associated risk involved in lending to a borrower with low documentation will be reflected in the inflated charges attached to both fees and interest rates.
As a guide, Bendigo Bank’s Low Doc Variable Rate Loan is currently 5.03% compared with 3.24% for their Basic Home Loan.
While this rate differential may not seem like the end of the world when you’re keen to get a foot on the property ladder, add in the LMI and other inflated costs and you may find it’s worth biding your time.
An expert broker, like those we work with, will be able to help you understand all your options. With an understanding of your financial situation, they will compare the costs of a low doc loan against what you could achieve by applying with minimal self-employed accounts.
They could even advise you how much you could save by waiting and getting your ducks in a row before plunging head first into an expensive deal.
How do you find the best deals?
Using a mortgage broker will give you access to home loan lenders you might not find at a mainstream bank or through an online search. While you’ll find a host of comparison sites vying for your attention, these websites have no idea of your circumstances and even less clue as to what kind of rate you will qualify for.
While internet rates tables and comparison tools can be useful to get a general overview of the deals on offer, they aren’t tailored to you and are often paid to promote specific products.
Taking all your circumstances into account, an expert broker will have the knowledge, tools and access to find and compare the best mortgages available to you. Saving you a whole heap of time, hassle and potential heartache when what you thought was possible turns out not to be available in reality.
The brokers we work with are experts when it comes to securing home loans for self-employed borrowers. Get in touch for a free, no-obligation chat and let them find and compare the self-employed mortgages you qualify for…
Speak to an expert
Make an enquiry for a free, no-obligation chat. We’ll match you with one of the expert brokers we work with. They will be happy to answer all your questions and using their experience and knowledge will find you the right mortgage for the best available price, taking all of your circumstances into account.
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column offset=”vc_hidden-sm vc_hidden-xs”][vc_empty_space][vc_separator color=”purple”][vc_empty_space][tek_sectiontitle st_title=”We’ll match you with your perfect mortgage broker” st_title_tag=”h3″ st_subtitle_decoration=”” st_separator_enable=”separator_off” st_text_align=”text-center” st_width=”st_fullwidth”][vc_column_text]Save time and money with an expert who specialises in cases like yours
[/vc_column_text][vc_row_inner][vc_column_inner width=”1/3″][/vc_column_inner][vc_column_inner width=”1/3″][tek_button button_text=”Get Started” button_link=”url:https%3A%2F%2Fwww.onlinemoneyadvisor.com.au%2Fcontact-us%2F|||” button_position=”button-center”][/vc_column_inner][vc_column_inner width=”1/3″][/vc_column_inner][/vc_row_inner][vc_empty_space][vc_separator color=”purple”][vc_empty_space][/vc_column][/vc_row][vc_row full_width=”stretch_row”][vc_column offset=”vc_hidden-lg vc_hidden-md”][vc_separator color=”purple”][tek_calltoaction cta_icon_type=”no_icon” cta_title=”We’ll match you with your perfect mortgage broker” cta_subtitle=”Save time & money with an expert who specialises in cases like yours.” cta_text_color=”#000000″ cta_button_link=”url:https%3A%2F%2Fwww.onlinemoneyadvisor.com.au%2Fcontact-us%2F|||” cta_button_text=”Get Started”][vc_empty_space height=”50px”][vc_separator color=”purple”][/vc_column][/vc_row]