Although purchasing a property while running or managing your own business may seem daunting, it is possible with the help of a home mortgage plan. When you are self-employed or running your own business, securing a home mortgage loan in Singapore is usually a little more complicated compared to if you are employed by a company. Self-employed individuals and small business owners generally have more criteria to meet to qualify for a home mortgage loan – be it from HDB, a bank, or a money lender in Singapore.
For instance, in most cases, self-employed persons and small business owners are required to provide up to two years’ worth of complete and comprehensive documentation about their finances before they can take out a home mortgage loan. Nonetheless, you can still get your home mortgage loan as a self-employed person or small business owner smoothly with enough information and preparation. Here are some of the ways to increase your chances of obtaining a home mortgage loan while still in the process of building your small business.
- Prove a year-over-year income consistency
Most of the time, HDB, banks and money lenders need to review an applicant’s income records before approving their home mortgage loan. Employees usually only need to submit at least 1-6 months of their monthly payslips. But for self-employed individuals and business owners, since they do not have payslips, money lenders would often evaluate how much they have earned through a Profit and Loss statement.
A Profit and Loss statement will confirm that your income is the same as the income you reported on your tax return. Moreover, to quickly get approval for your home mortgage loan, you should be able to show, through your statements and other documents, that your year to year income is consistent. In other words, you need to have proof that your business is a reliable source of income.
- Show some financial statements
Aside from a Profit and Loss statement that illustrates income flow, a good number of money lenders also usually require home mortgage applicants to prepare and submit some financial statements, including statements for retirement accounts, deposit accounts, and other assets one may have. These financial statements are a way for the bank or money lender to confirm that you have sufficient cash for mortgage-related expenses.
Moreover, apart from confirming that you have enough cash reserve, financial statements can also help you prove your income flow. When it comes to verifying current income, some banks and money lenders accept bank statements instead of the usual year-to-date Profit and Loss statement.
- Never under-declare your income
As mentioned, your income plays a huge role in getting your home mortgage loan approved. As a self-employed individual or business owner, you will generally be required to show documentary evidence of your income, such as your payslips, paid invoices, and others. It is imperative that the income shown in your documentary evidence is the same as the income you reported in your Inland Revenue Authority of Singapore (IRAS) tax returns and your Central Provident Fund (CPF) statements.
Although banks and money lenders have varying standards on what documents they will accept, almost all of them will consider your IRAS tax returns and CPF. So, if you pay your taxes and mandatory contributions correctly and are honest about your earnings, you would have better chances of Crash Course to Home Equity Loans approved.
On the other hand, if you under-declare your income to obtain loan approval, you would risk getting into trouble with IRAS. Under-declaring your income or failure to declare all assessable income can result in tax evasion, which is illegal in Singapore. Under the Income Tax Act, if found guilty, a penalty of three times the amount of tax undercharged and/or tax advantage gained will be imposed. This is on top of a fine of up to $10,000 and/or a three-year prison sentence.
- Maintain proper records
Keeping proper records is essential for all businesses, but it becomes even more necessary if you are trying to obtain a mortgage loan as a business owner. For HDB, the bank, or money lender to assess your actual income, you must maintain proper records of your work and projects.
Many banks and money lenders do not accept personal record-keeping systems that fail to meet accounting standards. If you are running a business, it would be good to hire a part-time accountant or start using some form of accounting software for efficient record-keeping. Moreover, you should make sure that your IRAS tax returns, CPF statements, and at least three months of your income statements are all ready when the lender asks for them.
- Improve your credit score and debt-to-income ratio
Having a poor credit score can significantly reduce your chances of successfully obtaining a home mortgage loan. Even if you can get the loan, having a poor credit score would result in a lower loan amount, which may be insufficient for your needs. This is especially true if you operate a sole proprietorship and are heavily leveraged because of your business.
It is highly recommended for you to begin paying back your loans reliably and closing your unused credit lines at least a year before attempting to obtain the mortgage loan to ensure the success of your home mortgage application. Some of the most effective ways to improve your credit score include developing consistency in your repayments and minimising your debts.
It would also be beneficial to reduce your debt-to-income ratio. Usually, banks and money lenders want an applicant’s debt-to-income ratio to be kept between 36% and 43%. If you have a much lower debt percentage than the other mortgage applicants, you would have a higher chance of qualifying for the loan even though you are self-employed or a business owner. So, as much as possible, come up with an effective plan to pay off your debts.
- Establish positive long-term relationships with your customers
Having positive, long-term relationships with your customers or clients will not only boost the reputation of your business but can also give you a better chance of securing a home mortgage loan. Some money lenders require self-employed or business-owning borrowers to provide references from customers or clients.
Hence, before submitting your application, make sure you have already put in some time and effort to develop good relationships with your business’ customers. It will help if they are satisfied with the products and services you provide because your connections with them and their willingness to vouch for you will undoubtedly come in handy when trying to secure a loan.
Undoubtedly, there are many complicated obstacles that self-employed or small business owners face when obtaining a home mortgage loan in Singapore. Fortunately, most of these challenges are avoidable with adequate information and preparation. The tips mentioned in this article are just some of the ways to make your home mortgage application more seamless and fuss-free.
To ensure that you make an informed decision and get a loan that best suits your needs, obtain your property loans from reputable loan providers only. Here at OxProp Capital, you can rest assured that all our loan services have no hidden costs attached and are specially tailored to help you maximise your liquidity. We offer a variety of secured property loans that are transparent, reliable, and customisable. To find out more about offered loan services, feel free to reach out to us anytime.