Considerations for self-employed or contractor borrowers

Fri June 17th 2016

Let's not kid ourselves. Borrowing money as a self-employed person or contractor is more difficult than it was pre-GFC. All for good reason too. There were too many risky loans handed out using flimsy evidence of income, and we know how that ended up.

The big problem is that the whole process is now misunderstood and I have seen dozens of examples of people being held back by not knowing how to secure a loan. Think how much you have lost out by not buying that house twelve months ago.

For many borrowers their financial statements do not give an accurate picture of their cashflow, and explaining how secure your contracting work is, is sometimes too much work.

That's not to say you cannot still buy that house you want, refinance to a lower rate, or consolidate your debts if you are self-employed. You just need to know how to present your story and your application. The bank or lender is only going to go so far to understand your situation if what you present to them is a mess, or has more unanswered questions than Auckland Council's housing plan.

There is money to be borrowed - we just have to meet the lender halfway.

Contractors:

• How far back can you go with your previous contracts?
• Can you provide evidence of previous employment in a similar role to show experience?
• Are you receiving payments regularly? This will show consistency

Sole traders/ small business owners:

• Don't take too many deductions. Some accountants are fantastic with pushing the boundaries.
• Given an insight into your business model and revenue, a good banker may be prepared to use projections for the next financial year.

If the bank is still not approving a loan, some residential lending rates with specialist lenders not requiring full financials are lower than the lowest rates were two years ago. Several months of bank statements and GST Returns can be used as income evidence in place of two years of full financial statements.

Would you rather sit on your hands or wait until you have the finest set of financials on the block, only for interest rates to go back up again anyway?

For sound mortgage advice and insight, get in touch with Cave Financial now.