“How Do I Get A Mortgage When I’m Self-employed?”
I am self-employed and interested in buying an investment property however I am struggling to find a bank that will lend money to someone without a full-time job. I have been self-employed for three years, my income is stable and I could easily make the repayments for a $700,000 loan. What should I do?
Sharon, 52, Bondi, NSW
We tend to underestimate the risks of taking out a loan so the first question you should ask yourself is why you want to buy an investment property? What’s the real objective here?
Is it to boost retirement wealth?
People regard property as a solid investment, but it may not be the most efficient way to build wealth. Property investors sometimes forget to account for the cost of maintaining the property, the agent’s fees to manage the property and the risk of periods without tenants. If a healthy retirement nest egg is your objective, you may want to consider boosting your super instead. Super can give you tax concessions and investment opportunities at a low cost and with few hassles.
Is it to develop a property portfolio?
If you still want to go ahead and buy an investment property you will need a loan. Considering your employment status, here are three options:
Reach out to the “family bank”. Given the current low interest rates, family members may have money on deposit earning less than 0.5 per cent interest. You could arrange to borrow money from them at an agreed interest rate but bear in mind that it is sensible to structure a proper loan agreement. If this is something, that might work for you, a lawyer can assist.
Contact a mortgage broker. Banks are not the only source for loans. A mortgage broker can offer information about alternative lenders such as credit unions, but you may have to a pay a slightly higher rate of interest.
Be patient and wait until you have built up a history that demonstrates to a bank your earning capability and sustained level of income.
By Kate McCallum, financial adviser and author of The Joy of Money; multiforte.com.au
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