How to buy a property when you’re self-employed
When you’re self-employed, it can be harder to qualify for a home loan than if you’re an employee collecting a regular salary.
That’s because a small business owner’s income may be more variable, their financial position more complex and – in the eyes of lenders – their future employment less secure (due to potential doubt about the viability of your business). As a result, lenders may regard self-employed borrowers as less creditworthy and find their applications harder to assess.
Therefore, if you’re self-employed, any steps you can take to make your financial position appear more secure, predictable and transparent will strengthen your position as a borrower. Doing so could mean more lenders will be willing to do business with you, provide larger loans, and charge lower rates.
Here are some tips to help you do just that:
Pay yourself a regular salary. Lenders will be reassured if they see you collecting a regular paycheque (i.e. the same amount of money on the same date each month), because that will help them understand where you’d get the funds to make a regular monthly mortgage repayment.
Establish a robust business. Lenders will scrutinise your business financials as part of the application process. Reliable profits and cashflows will make a positive impression (and vice versa), because that will suggest you’re likely to have secure employment for years to come.
Get your records in order. The more business and personal financial documents you can provide during the application process, the more borrowing options you’ll have. Conversely, if you have limited documentation, you might be forced to settle for a low-doc loan, which will limit your choice of lenders and force you to pay a higher interest rate.
Improve your credit scores. When you apply for a home loan, lenders will almost certainly check your personal credit file – and probably your company’s credit file as well. The higher your credit scores, the more creditworthy you’ll appear in the eyes of lenders. You can improve your credit scores by paying all your bills on time, paying off loans, reducing the limit of any credit cards you have and minimising the number of credit applications you make.
Use a mortgage broker. If you approach a bank directly, your options will be limited, which could mean you don’t apply for the right loan for your circumstances. But if you use a broker, you’ll gain access to a large, diverse panel of lenders. Chances are, at least one of those lenders will be keen to do business with someone matching your particular profile.
We love helping self-employed people buy properties and know which lenders tend to be small business-friendly.
Licensing statement: Rayne Finance ABN [70 605 100 838] is authorised under LMG Broker Services Pty Ltd Australian Credit Licence 517192. Disclaimer: (1) As with any financial scenario there are risks involved. This information provides an overview or summary only and it should not be considered a comprehensive analysis. You should, before acting in reliance upon this information, seek independent professional lending or taxation advice as appropriate and specific to your objectives, financial circumstances or needs. This publication is provided on the terms and understanding that: (2) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication. (3) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to the maximum extent permitted by the law to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication.
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