Home Loan

5 Home Loan Tips for the Self-Employed

Home loans can be frustrating to apply for a self-employed person. Especially when you are not up to the standards of proving that you are capable of returning the financing provided. Without a steady salary, it is tougher than usual to get a bank loan. However, there are ways to improve your chances of getting a home loan.

1. Initiation to declare income taxes.

Declaring income taxes for the recent few years is a solid proof of your consistent income. This is why we should make use of our tax payments instead of only trying to minimize them. The idea of showing your ability as a self-employed workforce is measured through your income tax statement. Thus, if you are planning for a home purchase with a loan, do actively declare your income on time.

2. Maintain good financial records.

It is always important to keep your accounts well managed not only for loan purposes. Knowing your accounts which incorporate profits, losses, expenses and incomes will ease the process for the banks to estimate the level of affordability of your business.

Alternatively, you can hire a bookkeeper to manage the monetary calculations of your business. It does require more expenses, instead you can take a short course and use an affordability calculator to evaluate your level of affordability.

3.  Deposit EPF self-contributions regularly.

If it is possible, make periodic deposits to your EPF account, do it every month for at least two years. This pattern will show that you have a steady income, which is similar to an employed person who has a monthly salary. Besides, savings from your EPF account can be withdrawn in future to pay home loans, thus having an amount in this account can also be an assurance to paying the home loan.

4. Find a guarantor for your loan.

In fact, look for a credible guarantor to support your loan. It reduces the liability and risk on your home loan assessment. The guarantor should possess a strong employment background to be evaluated on.

One thing to note is to be truthful to the guarantor about your ability to repay the loan, since there will be  financial repercussions and legal consequences accounted on the guarantor if you do not make repayments.

5.  Accumulate financial strength on assets.

One way to prove financial strength is by using other properties or financial assets as collateral, such as stocks, bonds, or a life insurance policy. To back up your position, you might choose to create a fixed deposit account with the lending bank. You can also create a credit history by using a credit card, which is a track record of on-time payments that improves your credit score.

Furthermore, if you can put down a larger deposit, you will have a better chance of getting a lower loan amount. Mortgages with 90 percent to 100 percent funding will be a little more difficult to come by. Also, apply for a low-interest, flexible loan that gives you more control over your monthly payments.

While you attempt to enhance your position in order to get your loan accepted, keep in mind the following factors that could lower your chances:

  1. If you have loan defaults or arrears, make sure to pay them off fully and wait 12 months before applying as CTOS might keep debt information.
  2. Before applying for a loan, do a self-check with CTOS and CCRIS, and if there are any discrepancies, contact them to get explanation and fix the problem.
  3. Avoid racking up credit card debt or defaulting on your loans in any way. These are red flags that will harm your credit score and make it difficult for you to obtain financing.

In conclusion, deciding to work as a self-employed individual can be incredibly fulfilling. However, you will need time to build up your financial strength to demonstrate a track record of financial stability. Good news is that many self-employed individuals have successfully received home loans. Follow our tips to increase the chances of home loans. Do check out LoanPanda comparison page for assistance in locating the best loan for your needs.

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(1) Comment

  • Facts About CTOS - LoanPanda 12:30:00 pm July 22, 2021

    […] Banks use this data to verify the person’s income, which is especially important for company shareholders and business owners. […]

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