If you’re self-employed and your income varies each month, saving for a home can be a real challenge.
One way to demonstrate you’re a good candidate for a home loan is to show lenders that you have a history of regular savings. Here are five strategies to help maximise your ability to put aside money.
1. Save more during prosperous months
When business is booming and you're earning more cash, it’s tempting to reward yourself for the hard work, however It is important not to lose sight of your bigger goals. Do some research on saving accounts that give you some bonus interest and try to set aside that extra cash, as every bit of income helps! Choosing the right savings account is a personal choice just make sure you’re getting the most out of the savings.
2. Set a goal for your home deposit
Work out how much you need to save for a deposit in your desired suburb and add on those extra costs like stamp duty and legal fees. The type of fees charged by lenders may be different depending on the product you‘re applying for. You can learn about Pepper Money’s home loan fees here. Although it’s possible to secure a loan with a five per cent deposit, aim to save 20 per cent of the property value to avoid paying Lenders Mortgage Insurance (LMI). Note that Pepper uses a Lender Protection Fee (LPF) which is somewhat similar except that it gives us the flexibility to assess loan applications without having to seek approval from LMI providers.
3. Be smart about your tax deductions
If you're self-employed, you may be able to claim income tax deductions for expenses related to your business. These can add up significantly and help you save towards a deposit for your new home. Expenses you can claim may include home office expenses. We definitely recommend that you refer to the ATO website for guidance or speak to a qualified tax professional or accountant to get more information about what you can claim on. Getting an accountant can be a worthwhile investment. Accountants know what you can claim for and can help you get the best return.
4. Save a percentage of your pay each month
When your income streams are irregular, it can be tempting to only put money aside when you receive large payments. But a little discipline can go a long way. The 50-30-20 rule is one common budgeting tool that many people use and it may put you on the right track towards saving for a deposit! Every situation is different but whether the paycheck is big or small, you can be sure that you’re saving each time you are getting paid and working towards your financial goal.
5. Protect your income
Should you be in a situation where you are unable to work due to an injury or sickness, income protection insurance may help cover for the income lost during that period which means you won’t be using your house savings for daily expenses. It’s important to do an intensive research before purchasing insurance. ASIC's Money Smart website offers useful tips and information around income protection insurance.
To find out a little more about Pepper Money home loan options that could work for you and how much borrowing power you have, get in contact with one of our friendly Lending Specialists on 13 73 77 or speak to an accredited Pepper Money Broker.
All applications are subject to Pepper's normal credit assessment and loan suitability criteria. Terms, conditions, fees and charges apply.
This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.