Tips For Getting a Home Loan If You Are Self Employed

Written by Mortgage Market Dec 15, 2017

If you’re self-employed then it can be a little harder to get home loan approval, especially if you’ve never had a mortgage previously. But, in saying this, it is not impossible. This is providing that you can show you draw a regular income from your business and that you’ve been in business for a number of years.

If you pay yourself once in a blue moon because your earnings are erratic, or if you have only just started in business for yourself, then it may be better to wait before committing yourself to a home loan. Remember, lenders and brokers look for financial stability and minimal risk. So, if you can’t substantiate these aspects, then it’s highly unlikely that you’ll get home loan approval.

However, if you’ve been in business for a number of years and draw a weekly wage, then it may be the right time to apply for a home loan. Let’s look at how you can make your application an easier process.

Simplifying the Self-Employed Home Loan Application Process

  • Your Income – The more financial information you can provide, the better. You should have at least two ATO Tax Assessments as a self-employed person. This then shows your lender what taxable income level you are at so that they can then ascertain if you have a high enough level of income to be eligible for a home loan.
  • Your Borrowing Power – Your lender will need to know what your taxable income is, what assets you have, along with debts, and the number of dependants that you have. Once they have this information, they will then be able to work out your borrowing power or the amount you can afford to lend.
  • Proof of Income – You’ll need to prove your level of income. Your lender will ask to see the financial statements of your business for at least the last 2-years. This will then allow them to view your business turnover, as well as your gross and net profit.
  • Honesty is the Best Policy – Be open and honest with your lender about your business, your current financial circumstances and your overall income. In most cases, this will help you to get a home loan faster.
  • Less Debt, More Assets – The lower your existing debt, the easier it will be for you to take out a home loan. Therefore, if you have any small personal or vehicle loans, then it may be an idea to pay these out, or for you to consolidate these loans before you ask for a home loan. Also, if you have assets that are not under finance, this can add to your overall worth and reduce a lender’s risk.
  • Apply for a Joint Home Loan – If you are in a relationship and your partner is not self-employed, then consider putting in a joint application. This can then improve your ability to get home loan approval, especially if your partner has secure long-term employment that spans over more than 2-years.
  • Lower Your Credit Card Debt – If you currently have credit cards, then now is the time to reduce your credit card debt. Pay off any balances and reduce your credit card limits to $1,000. This will then increase your borrowing power and make you less of a risk.

Overall, the biggest problem that you will encounter as a self-employed person is proving your level of income, as most business accountants are too efficient at reducing the taxable income of their clients and this then makes it difficult to secure a loan. Why? Well, a lender can only judge your earnings based on the figures they have in front of them. So, if these figures are low, then the lender may think that you are unable to repay the debt you want to borrow or that you are a higher risk than you actually are.

Are you self-employed and want to know more about home loans? If so, then contact us TODAY. We can help you!