How Do Self-Employed Individuals Secure a Good Home Loan?

Applying for a home loan is pretty straightforward for most people in New Zealand. However, it can be stressful and complex to apply for a home loan for those who are self-employed, running their own business, or working as a freelancer. But that doesn't imply it is unattainable; just it takes a little more work.  

  

Why Do Banks Usually Reject Self-Employed People?

When it comes to a home loan, financial stability is one of the crucial factors that lenders consider. Since a mortgage involves a lot of money, banks need to be assertive that you're in a good position to repay that debt.

If you’re an employee, you’ll receive the same amount of money each month (with bonuses, etc.). It is easier for banks to picture your income and lend accordingly. But as a self-employed person, your income can vary each month. Consequently, banks are often hesitant to lend to self-employed individuals.

How Can a Mortgage Broker Help?

If you are a self-employed borrower, getting advice from the best mortgage broker in NZ is vital to finding a suitable finance solution. A reputable mortgage broker can help you find lenders that are more likely to loan you money. Moreover, a broker can help you understand the additional requirements that some lenders may demand and help you put together a strong mortgage application.

Are you in the market to buy your first home and are self-employed? If yes, here is how you can maximize your chances of a successful application.

1.    Exploring the Options

If you want to secure a loan as a self-employed worker, you must explore various lending options, such as non-bank lenders.

A non-bank creditor can offer loans with much more flexible lending criteria than banks. Although non-bank loans tend to have slightly higher interest rates than traditional bank loans, they are an excellent choice for a self-employed individual.

Down the line, once your business has flourished and you’ve proven your ability to make mortgage repayments, you can refinance your home loan with a bank and lock in a more reasonable price.

 

2.    Form a Strong Self-Employment History

If you want a loan as a self-employed person, you should maintain comprehensive financial records. That will help lenders get better insight into your long-term income trends and ability to repay the loan.

Banks usually want to see at least one or two years of financial records. Only after that, they consider a home loan application from a self-employed individual. That can be challenging if you're in the start-up phase.

 

3.    Clean Up Your Credit History

Mortgage lenders often disapprove of a home loan because of the bad credit history. So, to strengthen your application, you must get your finances.

For instance, paying off consumer debt like car loans, personal loans, and other lines of credit will make you appear as an ideal borrower.

The Bottom Line

It can be hard to navigate the challenges involved with obtaining a competitive home loan as a self-employed worker. However, the best mortgage broker in New Zealand can help you find potential lenders, so you don’t waste time applying with someone that isn’t likely to approve your loan.