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5 tips for self-employed first-time home buyers

5 tips for self-employed first-time home buyers

April 23, 2024

Being self-employed, whether as a contractor, freelancer or running your own business, offers numerous advantages and freedom. In fact, according to Stats New Zealand, nearly 144,000 Kiwis work asself-employed contractors, and this number is only growing.

However, it also comes with added pressure and responsibilities that can sometimes be stressful – especially if you want to get on the property ladder.

As a mortgage advisor who works with many self-employed first-homebuyers, I’m here to tell you that it is possible with the right guidance and advice.

If you are self-employed and looking to buy your first home, here are five essential tips to navigate the process successfully.

Tips for self-employed first-time home buyers

Understand the requirements

Traditional banks often have stricter lending criteria for self-employed borrowers because of potential income fluctuations. They need to ensure that borrowers can repay their loans in case of unexpected financial situations.

Therefore, it is essential to familiarise yourself with their requirements and gather the necessary documentation to prove your income stability.

The lending criteria will vary depending on the lender. However, documentation on income, bank statements, credit rating, and expenses will be required for anyone seeking a mortgage, regardless of employment status.

Documents proving consistent income generated in your business for the past two years tend to give lenders more confidence when lending and improve your chances of getting approved for a loan.

In addition, remember to use good accounting software to help manage your financial records.

Save for a larger deposit

A larger deposit of 20% of the property’s value is advised and in cases required by the majority of lenders for self-employed borrowers.

The reason is to offset the risk given the nature of self-employment income, which is often volatile. This shows a lender that you are serious about purchasing a property and can save money.

However, there are now opportunities to get a first buyers home loan with a deposit as low as 5%.

Improve your credit score

A good credit score is crucial when applying for a mortgage. Regularly review your credit report and take steps to improve your creditworthiness.

Pay bills on time, reduce outstanding debts, and avoid taking on unnecessary new credit. Most importantly, demonstrate a strong credit history for a minimum of 12months.

Consider alternate lenders

If you face challenges securing a mortgage with traditional banks, explore alternate lending options.

Non-bank lenders often have more flexible lending criteria and are more willing to work with self-employed borrowers who have been operating their business for less than 12 months. These specialist lenders might be a good option for those with unique or complex financial circumstances.

We work with non-bank lenders offering authentic 'low doc' mortgages tailored for self-employed clients. This streamlined process requires minimal documentation compared to traditional banks, saving you time and reducing stress while increasing your chances of securing a mortgage that aligns with your financial situation and goals.

It is worth mentioning that the interest rates with non-bank lenders tend to be higher than with traditional banks, and this is where an experienced mortgage advisor can help you decide if this is the right option for you.

Seek professional advice

Consulting with a mortgage broker specialising in assisting self-employed individuals can be invaluable. We understand the unique challenges self-employed borrowers face. We can guide you through the process, help you gather the required documentation, and present you with suitable loan options you may not know about if you do it alone.

Know your options with Benchmark Mortgages

Self-employment presents unique challenges when buying a property. As aself-employed first-time home buyer, it is important to be well-prepared bygetting your documents in order and developing a sound financial record.

The process can be much smoother with the help of an experienced mortgage advisor. With patience, persistence, and the right guidance, you will soon be on your way to owning your dream home. Let us help you with your financial journey - contact us to explore your options today.

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