If you have just started a business and are looking to purchase a home the bank will consider your circumstances through a different lens to someone who is not self-employed.
Here is what you should know about applying for a home loan shortly after starting a business.
Do banks lend to business owners?
The short answer is yes but proving your income as a new business owner is a bit more involved than when you are an employee who can simply provide payslips to a potential lender. This does not mean new business owners are automatically knocked back for loans, but lenders will typically have stricter lending conditions for candidates who own their own businesses, especially new ones.
How long should I wait before applying for a home loan?
To be approved for a home loan as a self-employed person you will usually be required to have been self-employed for at least two to three years, however, most business owners can be approved for a loan after just one year. The reason for this is because after one year a loan candidate is able to prove their income for the full financial year.
Can I be approved for a loan more quickly if I have taken over an established business?
If you are the new owner of an established business that has years’ worth of trading figures then a lender will assess your situation differently to a business owner who has just started out. If this applies to you, being certain that you can provide the previous years’ earnings to your lender for their consideration will help bolster your loan application.
Is there anything I can do to increase my chances of being approved for a home loan after starting my own business?
If you are a business owner and you are looking to apply for a loan in the near future there are a few things you can do to ensure you are well-positioned to be approved.
First off, call in any outstanding invoices. The more income you are able to use as evidence that you are a strong candidate to service a mortgage the better, so chasing up late payments before you apply is in your best interests.
Ensure that you have separated your personal and business finances. Any assets in your business name cannot be counted as your personal assets unless you are a sole trader, so don’t rely on a healthy business account balance if the funds are not for personal use.
Make regular deposits into your savings account. This will abate any concerns a lender may have about your income fluctuating and your ability to earn, save and pay back debt.
Keep your records up to date or, at the very least, make sure they are updated before you apply for your loan. This will help the lender to determine the state of your business and how steady your income is. The level of accuracy will help, so provide as much detail and be as transparent as you can possibly be to increase your chances of being approved.
Some lenders may also look at your earnings prior to starting your business, which helps to ascertain your earning power should you decide to close the business and seek employment in your previous field. However, this is at the discretion of the lender.
Seeking professional financial advice can also help to prepare your finances in readiness for a loan application. A mortgage broker can also be of great use as they work directly with lenders and know which financial institutions are most likely to lend to someone in your position. If you are seeking more information, speak to our Mortgage Brokers today (07) 40 520 750.