Top tips to save for a deposit when you're self employed

Posted on Thursday, July 14, 2016 - 11:32

Every person wants to live in their own home, far away from the whims of landlords who suddenly decide it is time for you to move. You’ve only gotten used to the apartment, and now you have to find someplace else to call home. But this time, you want it to last.

That is easier said than done if your income is as capricious as the weather. In those cases, you might find it difficult to put some money aside for your own home – but it is definitely not impossible. If you are one of those people who are self-employed, here are some tricks for you.

Forgo small deposits

Scott Pape, the Barefoot Investor, tells self-employed individuals that if they save up to 20% more deposit money, they will avoid paying the $5,000-$15,000 extra they will be required at the Lender’s Mortgage Insurance. That case applies to any home buyer who has a small deposit, which is why you need to aim higher. Also, keep an eye on interest rates – if you have at least 1% on the rise, you will prove not only to the bank but also to yourself that you are able to pay off the mortgage.

Take advantage of the first home savings accounts

A first home savings account will return 17% of your money in interest, and is approved by the government of Australia. Indeed, the money will have to be parked in your account for about four years – but believe us when we tell you, it will be worth it. Also, Pape’s advice would be not to dive into a mortgage right away if you are self-employed – let those savings build up first.

Let go of luxuries for a while

Sure, dinner out every day seems to be a necessary evil if you don’t feel like cooking, and that expensive watch was too classy to let it slip. However, you need to make a difference between “needs” and “wants,” because wanting it doesn’t also mean you need it. Making your own lunch, buying furniture or clothes from outlets or tackling the “No spend September” can help you save some extra cash. To differentiate between needing and wanting, wait 30 days before purchasing it. At that point, you’ll know if it’s a whim or a necessity.

Lower the credit limits

As counter-intuitive as it sounds, lowering your credit limit will help you with your self employed home loan applications. The bank won’t look at how much you owe them, but rather at your maximum credit limit. They will need to see that your house mortgage will be the only big debt that you’re attempting to repay.

Consult a broker

It never hurts to get professional advice when you start planning. A broker will analyse what your position is and will explain how the bank will approach you. This way, you will be adequately prepared for your loan. Once you put these tricks into action, you’ll see that it will be way easier to get your own home rather than waiting for a miracle to happen.

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