Financial Advice Blog

How to get a home loan when you’re self-employed

Getting a home loan when you're self-employed can be challenging, but still possible! We share what business owners can do to get approved and secure a competitive rate.

If you’re self-employed applying for a home loan can be more difficult. But this doesn’t mean that you cannot get approved. Here we share what business owners can do to increase their chances of getting approved and securing a competitive rate.

Why is it more difficult to get a home loan when you’re self-employed?

Lenders assess your borrowing power through your taxable income. While not always the case, they generally perceive a person earning a salary as having a more guaranteed income. By comparison, someone that is self-employed has an income that fluctuates so they are considered more of a ‘risk’ of defaulting on their home loan.

What do business owners need to apply for a home loan?

Lenders will require both your personal and business financials to ensure you can make home loan repayments well into the future. Generally self-employed people will need to provide the following:

  • Personal tax returns for the past two years
  • Business tax returns or full financial statements for the past two years
  • Proof that your ABN has been registered for the last two years

What can business owners do to increase their changes of getting approved for a home loan?

Maintain a high credit score

Regardless of whether you are self-employed or not, maintaining a high credit score will increase your chances of qualifying for a home loan. This applies for you personally, as well as your business. So, make sure your business’s credit score is also as high as possible. If you find yourself with a bad credit score, you should look to make improvements by sorting out any unpaid debts and making sure that you are paying on time.

Wait until your business is well established

Generally, the shorter the period you have been self-employed for, the less likely you will be to get approved. When it comes to loan approval, the longer you are self-employed the better. That’s not to say you can’t get approved if you haven’t been in business for long. If you were a PAYG employee prior to starting your business it will be considered, especially if your employment was within the same industry as your business.

Boost your savings

A healthier deposit can increase your chance of qualifying for a loan. It proves some financial stability to the lender and boosts your profile. Generally, putting down a 20 percent deposit is ideal if you can. Additionally, if you have small HECS debt, it may be worthwhile to extinguish this, providing it doesn’t impact your deposit too much.

Engage a broker early

We highly recommend speaking with a mortgage broker early, even if you’re not quite ready to purchase. Because securing a home loan as a business owner can be more challenging, forward planning will help you to present yourself in the best possible light. They can advise you on the various options, such as low doc home loans.

What is a low doc home loan?

A low documentation home loan is offered by some lenders to self-employed people who are unable to provide the documentation listed above.  Generally, low doc loans require a slightly lower loan to value ratio (LVR), which means you might need a higher deposit. Additionally, low doc loans may incur a higher interest rate than standard loans.

Financial Spectrum can help you get your home loan approved

If you’re operating your business as a sole trader, partnership, company or a trust and looking to buy a home or switch your loan, we can have a team of in-house mortgage brokers that can help. Our years of banking experience and direct knowledge of how banks assess lending applications enables us to position your loan in the best possible light. Our specialists will help you understand your business cash flow, taxable income, and what other information you need to apply. The earlier you prepare, the greater your chances of getting approved and securing a competitive rate so speak to us today.

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