Get a home loan if you are self-employed or work incidentally and on a contract basis

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For Melanie, owning her own house—and getting a loan in her own name—was an arduous four-year journey.

The 38-year-old creative writing teacher jokes that it took her “47 jobs” and worked up to 100 hours a week without taking a vacation to finally secure her three-bedroom Brisbane Queenslander in 2019.

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“I’m exaggerating, but if I’ve gone through my paychecks and… [short-term teaching] contracts with the different universities, technically I probably had about 47 jobs,” she says.

“Every contract you do counts as another job at the bank.”

As someone who works primarily on a contract and occasional basis, Melanie says it was impossible to get a clear picture of how to get a loan.

She says her broker initially asked her to save $10,000 as a home deposit, but when she reached that goal, he told her she needed another $5,000.

“I used to get very frustrated… It’s very difficult to see what you have to achieve,” she says.

Why it’s harder in the gig economy, without a full-time job

Scott Malcolm has been a financial planner for over 20 years.

“The problem with self-employed people [people] or the one in the gig economy,” he says, “is that banks often view them as ‘more complex’ because they can’t just grab a paycheck and assess regular income.

“[In these cases] Banks often need a few years of tax filing history and then tax filing, such as BAS statements, so they can try to fit this into their lending business rules.”

Melanie says that even though she was consistently making about $90,000 a year, the banks viewed her contract education job as insecure. So, in addition to teaching, she had a steady part-time job in marketing.

“I held on because it was the track that made me look better on paper… [although] it wasn’t into what I wanted to do,” she says.

Mr Malcolm believes that the… Royal Commission for Banking and Financial Services sectors has also made it more difficult.

“The rules are much stricter now,” he says.

“Banks can’t lend that easily. They have to put a lot more i’s and cross a lot more t’s.”

He also says that some people applying for a loan find that the process is “taking much longer than usual … due to historically low interest rates and a record number of loan applications being submitted to lenders.”

“In this current environment, credit review teams are under pressure, so if a loan is missing documents it needs, the application just goes to the bottom of the pile.”

Focus on risk assessment makes it harder with less certain income

Melanie also says she found the process sexist.

Mortgage brokers, brokers and banks were constantly telling her, “Oh, but if you’re getting married, you could do this… Why not leave it on for three or four years and just see if you can have a double income.” ?”

Malcolm says the system is not designed to be sexist, but is “created around ‘risk assessment’ and income security is not weighted for singles or those in the gig economies”.

Therefore, this process is ultimately weighed against not only those in the gig economy, but also women, as they are much more likely to have an uncertain income.

Melanie, who is indigenous, says the banking systems are also detrimental to indigenous people.

“I think about the hurdles I had to overcome and how traumatic the experience with the banks was for me,” she says.

“It’s no wonder that the dream of owning a home is out of reach for many others.”

What Melanie Did To Own Her House

Melanie says owning a home was more than just an investment. It was about making a home for themselves.

“I’ve always wanted to buy my own house… and have a space for everything in my house and have my own stuff around me,” she says.

“I really like vintage and retro stuff, so I wanted to decorate the way I wanted to decorate.

“I decided I would try to show the bank that I could really live, pay all my bills and expenses, including my rent, my power, my private health insurance, all that stuff from that one steady part-time job.”

To save the necessary amount, Melanie started packing her own lunches and stopped buying coffee and going out.

She told her friends, “I’m literally home all the time and there are things in my fridge. Come eat with me if you want to hang out.”

Now that her four-year journey has come to an end, Melanie looks back and can’t believe she made it.

“I often feel the urge to pinch myself… I’ve worked hard so many times for the idea or hope of a reward, but owning a home is something real and tangible,” she says.

“In many ways it’s more expensive than renting, but it’s so nice to pay back something that belongs to me – a place where I can paint and put hooks in the walls, instead of paying off someone else’s mortgage .”

What can you do to increase the chance of a home loan?

Mortgage broker Catherine Dodd says banks are numbers-driven, so knowing that and being prepared can help.

Here are tips from Mrs. Dodd and Mr. Malcolm:

  • Talk to a lender or broker early to understand your borrowing power with different lenders.
  • Find a reputable mortgage broker who can unravel the process and help you “tell your story to the bank”.
  • A real estate agent can also give you budgeting tips or explain how to get all the information ready and accessible for a successful application.
  • If you plan to apply for a loan, you must: keep track of your business and personal expenses and keep records of your tax return (BAS).
  • Have supporting documents such as bank statements ready and prepared for questions. For example, you may have to explain one-off costs to the lender.
  • Malcolm says the system may feel unfair or be charged against you, but for the banks it’s a numbers game: “Make sure you realize there are other professionals if you have a bad experience with a lender or broker. Find someone that suits you and is aligned with your values.”

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Ginger Gorman is an award-winning social justice journalist and author of the book Troll Hunting.

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