According to the Ministry of Manpower, the number of non salaried individuals in Singapore is steadily growing which stood at 211,000 in 2019 – that’s almost 9% of the Singapore workforce.
In light of the COVID-19 pandemic as well as a shift towards flexibility in work, the number of people turning to freelancing for alternative sources of income or as a form of supplemental income in the gig economy are expected to rise in coming years.
This article will be a guide for the non salaried individuals in Singapore looking to become homeowners.
If you work for yourself and aren’t employed by a company, you are considered a non salaried person. It is a broad term that includes freelancers, contract workers, and business owners with a wide range of income levels and earning potential.
When you are non salaried and want to buy a new house, you fill out the same home loan application as salaried people and everyone else. Lenders will also consider the same things, such as your credit score, debt obligations, income and assets to evaluate your application.
So, what is so different about home loans for non salaried people? Well, it’s the documentation burden. The home loan eligibility criteria for non salaried individuals is slightly different from a salaried employee. Home loans tend to favour those in salaried positions as it is easier for the mortgage lender to judge the borrower’s financial stability.
They can easily access the salaried person’s employment history and get payslips as proof of income from the employer. This will help assure the potential lender that an individual is capable of making monthly repayments.
On the other hand, without a salaried position, there is no regular proof of income from a company to present to the mortgage lender, which could be a reason of concern for the bank lending money.
Not just that, banks apply a 30% haircut on the variable income. This means whatever income you are earning; the bank considers it as if you earn 30% less. Say you have a monthly income of $5,000 working as a non salaried individual. Since the income of non salaried individuals are considered variable income, it is subject to a 30% haircut.
So only 70% of your declared income will be considered as a basis for a loan offered by the lender bank. In this case, your mortgage will be based on a monthly income of $3,500, thus significantly reducing the amount you can borrow.
Since most banks do not allow your monthly mortgage repayments to exceed 60% of your monthly income taking all debt obligations into account, keep in mind that your monthly repayments cannot go beyond $2,100 every month.
For most salaried workers, only a small part of the income is variable, which is almost insignificant.
So, make sure you are in a good position of getting a home loan before you embark on your home loan journey. Having all the documentation ready helps fast forward the approval process.
When you apply for a mortgage, your lender bank will require several documents to prove that your income is as stated in the application. Not to worry, though: proving your income is less difficult than you might think.
There are some basic documents that must be presented as proof of income to the loan officer when applying for a home loan. Let’s take a look at documents banks look at while approving your loan application:
CPF contribution statements. Your CPF contribution statement keeps a record of the transactions made based on your income in the most recent 12 months. It also shows a person’s salary and job stability to the lender as a change in employer is also be indicated in the CPF contribution history. Generally, banks can easily compute your gross monthly income by just knowing your age and contributed amount.
Many non salaried individuals tend to skip their CPF contributions to retain more spending income. This can be a problem for them at the time of home loan application.
Payslips. When it comes to income of proof, a payslip is another standard document that validates a person’s income. The computerized payslips are generated by credible software by employers and banks often take them at face value. These payslips show how much an employee is actually paid, in addition to allowances that help to boost qualifying income.
Typically, banks require payslips for the most recent 3 months. The number of months of payslips generally vary from one month to six months. Some banks also accept your latest payslip and employment contract if you are working for less than 3 months.
Tip: If you have started a new job recently and haven’t received your first payslip or made a CPF contribution yet, you can use your employment letter to support your loan application.
Income tax statements. If you don’t have any payslips or you get your salary in cash, you can still get a home loan in Singapore with your income tax statements.
Your annual income tax statement is solid proof of what you have made over the course of a year and is a must-have while processing and reviewing your home loan application. Some banks and lenders might need the income tax statement for the latest year while others might request them for the most recent two years.
If your income tax returns provide a full and pleasant picture of your ability to earn income for yourself, it can positively impact getting your loan sanctioned. Note that your business should be in existence for two years before the bank can recognise your non salaried income.
Tip: A lot of non salaried individuals try to understate their earnings in a bid to avoid paying income tax and CPF contributions. Such actions in the present day might deter your loan applications tomorrow.
Existing credit facilities statements. When you apply for a home loan, lenders need to see all your existing credit facilities statements. Banks may demand your latest statements for credit facilities such as existing housing loans, car loans, personal loans, credit cards and others.
The credit facilities statements not only show you have an existing relationship with the bank but also help the bank judge you on your ability to repay the loan. If you have never defaulted on a payment, your chances of obtaining the loan might be higher.
It is not possible to get a regular home loan if you cannot substantiate an income declaration. As a non salaried individual, it is always a good idea to keep a current and accurate record of your income. But what if you don’t have standard income proof like payslips and CPF contribution history to show your lender bank?
Technically, it is possible to get a home loan in Singapore in the absence of standard proof of income documents. If you don’t have the required income documents, then you must look for alternative documentation to prove your ability to make timely repayments.
A lot of non salaried individuals applying for a new home loan face this problem of proving their income to their lender bank. Fret not. Following are the alternative income documents that are absolutely essential for a home loan to be approved in the absence of standard income documents. The above-stated documents can be shown as income proof and prove your ability to make prompt repayments.
An invoice maintains a record of a transaction between a buyer and seller and can always be used as an alternative proof of income. Invoices issued to bill clients can show that you are non salaried but with a steady, reliable income. You can provide a report listing all the invoices you have raised in the past one (or two) year along with basic project and client details to let the lender bank evaluate your income. This can take you a step closer to getting your home loan approved.
However, since this type of information is not confirmed by credible sources like the IRAS or your bank, it is generally not the first choice for the lenders. But in the absence of standard income proofs, a list of invoices can certainly make a difference to your qualifying income.
Bank statements could present all your received payments from various sources to show proof of income for home loan approval. For example, if the payments match up with deposits into your personal bank account, your bank statement can be an alternative way to prove your income.
If you want to avoid the hassle of having to present the minute detail of your personal finances to banks or lenders, it is a good idea to set up a business bank account. Your business bank account statement will help streamline the transactions the lender bank has to review for your income.
As a non salaried individual, you could present your Notice of Assessment for two years to show as an alternative proof of income. You can submit your income tax Notice of Assessment (NOA) issued by IRAS which features all the details about your taxable income and expenses on a yearly basis.
So, how is it different from income tax statements? Well, NOA is what you get after paying all your taxes, and it does not include other non-taxable sources of income that you may have, which increases your qualifying income.
Please note that different banks may have different requirements for alternative documentation.
Getting a home loan without proof of income in Singapore is tough, but not impossible. Always keep in mind that a couple of rejected home loan applications can ruin your credit score and prolong your financial distress.
That’s why you need a professional home loan mortgage broker to discuss your options and get advice based on your specific financial situation.
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