Making a home loan application when you're self-employed.

Working for yourself can bring a lot of freedom, but the reality of running a business isn't always easy. Challenges include securing a reliable income, keeping expenses under control and staying on top of paperwork. When you add the hassle of securing a home loan, things can feel quite overwhelming.

While there are more boxes to check on a home loan application when you’re self-employed, don’t let this put you off altogether. Financial lenders are businesses after all. Like you, they look for ways to deliver their service without putting either of you at risk. The extra questions they might ask when assessing your eligibility for a home loan are to ensure all parties are ready to enter into a relationship (often long term) so that you both benefit from doing business together.

Typically a lender will ask for the following information, but this may vary depending on the lender and your individual circumstances:

• Proof of income.
  You’ll need to show income statements for the past two years. A profit and loss statement (and balance sheet where applicable), tax returns and details of the salary you pay yourself all count as proof of income.
   
• Income-to-expense ratios.
  Having a list of your assets, debts and your monthly payments will be needed for a lender to calculate your income-to-expense ratio. This is to confirm that your income comfortably covers any expenses you currently have. A favourable and consistent income-to-debt ratio assures them that you have the capacity to meet home loan repayments over the long term.
   
• Stability of income.
  A lender understands that being self-employed often means your income varies from month to month. This is why they look at up to two years of income when assessing your financial position. They will also look at any savings you have, and your ability to make consistent contributions to your savings. Depending on your individual trading circumstances, the bank may require some additional financial information such as interim financial statements, copies of BAS or an aged listing of Debtors and Creditors. 

 

If you are employed casually or have a business where cash flow can fluctuate from month to month, showing you can put a regular amount away into a personal savings account will work in your favour for your home loan application. This shows you have additional funds you can draw on to service your loan and that you have the discipline to commit to positive financial behaviours. This reassures lenders that you will be able to take the same approach with your loan repayments.

• A credit check.
  With your consent, a lender will do this on your behalf as part of your application. This will provide them with your credit score and history of any missed payments or defaults you had on loans or other types of credit with banks or financial institutions.

As the saying goes, being prepared is half the battle won.

Keeping on top of business planning and paperwork can really take the stress out of applying for a loan and increase your chances of securing one. If you can rely on others to get these things in order, this can save you a lot of time. Your accountant can help you prepare documents for your mortgage application, so use them if you can!

You might want to talk to your accountant about your deductions. Although deductions help to to minimise your taxable income, showing a greater income can be helpful in securing a home loan. when it comes to applying for a mortgage.

Documents to have up-to-date for an application include:

• ABN and GST details
• Company tax returns (last two years)
• Business financials – P&L, balance sheets (last two years)
• ATO portals (to confirm any Tax debt).

If your income is low or unpredictable, try to focus on increasing your regular savings. When some months are better than others for your business, try to make savings a priority. This discipline will work in your favour with any home loan application.

For more information on securing a loan when you’re self-employed, contact one of our Lending Specialists by calling us on 13 25 85 or by clicking the button below.