Getting a mortgage for a house is a very natural step for a person as they get older. However, it can often be a challenge for a self-employed person to get a lender to give them an adequate mortgage as they may see a certain level of risk attached to it. When people might not be making a steady income month on month, this may lead to missed payments at certain stages or a complete drying up of funds at some stage in the future. However, this does not mean that it is impossible by any stretch of the imagination.
If you have your affairs in order and can present a comprehensive case for yourself, you will have no problem getting a mortgage if you are self-employed.
It can often be useful utilising the services of a mortgage brokers in Melbourne who can help to identify the most suitable mortgage products and deals for your situation. Here is some advice that will help you through the process and learn what exactly the lenders are looking for when it comes to a self-employed individual.
Your previous few tax returns are important
When a lender starts to look into your financial situation, one of the first places they will look is your previous couple of tax returns. This is how they will try to get an estimate of what your average monthly income will be over the long run. This is normally the most important number that the lender will base their decision on, as it represents your ability to meet the full repayment each and every month.
If you are interested in knowing how exactly they reach this average number, it is very straightforward. They will take the figure of your adjusted gross income for each of the last two years and divide it by twenty four. This allows you to be prepared when you go for a meeting with the lender.
Your debt to income history
Another key area that lenders will look at is your credit score and your history with repaying debt as a whole. If a self-employed person has little history of using debt or they have a near flawless record of making repayments, they will be a lot more likely to give them their desired mortgage. If you have a history of missing debt repayments or you appear to use debt quite a lot, they may think twice about extended you a mortgage.
The majority of lenders will only lend you a certain amount as a percentage of your income. The best way to be certain of your chances of getting a mortgage if you are self-employed is to ensure that all of your different types of debt have been paid off fully and on time. This could be anything from student loans to car repayments. This improves your debt ratios and will show that you can be trusted with making complete and regular repayments.