How To Apply For A Home Loan If You're Self Employed

July 18, 2022

Saving for a home loan deposit and going through the motions of applying for mortgage loans is a handful for any Australian, but it can get that much trickier if you’re self-employed. As well as juggling your business you also need to prove your worth.

While you might need to jump through a few extra hoops, it’s not impossible to own your home or upgrade if your existing home is getting a little small.

Luckily you are surrounded by plenty of fellow lenders who, just like you, own their own businesses and manage their own finances, and they are flourishing. According to the Australian Bureau of Statistics currently, 7.8% of Aussie income earners are either self-employed or independent contractors. While you might all be unique and total strangers, the increased number of self-employed property buyers in Australia helps give strength to your claim that paying your mortgage yourself is possible and your application is credible.

What that means is that lenders have been forced to cater to this growing customer base and offer a range of flexible home loan options that are simple and straightforward to apply for and meet competitive terms. This helps self-employed lenders overcome the difficulties of finding and applying for home loans that were rampant in the past and help lenders entice customers in.

How do you apply for a home loan when you work for yourself?

Winning over a lender is easy when you approach your home loan application and property purchase as a professional. Luckily, as a business owner, being professional is right in your wheelhouse. If you turn up not knowing how to answer standard questions about your income and expenses, or don’t have the data to back up your claim it’s going to look sloppy, uncommitted and ill-prepared.

The more organised informed and straightforward you are about what assets you have and what property you are looking for, the easier it will be for a lending agent to see that you are dedicated, serious and willing to back your property purchase all the way.

#1. Take charge of your cash flow

Having an irregular income can make saving for a deposit challenging. As a self-employed income earner, it’s important to keep track of your income and expenses and pull it back into line so there is nothing showing that seems over the top or a liability to lenders i.e credit card debts, but afterpay purchases, gambling or luxurious splurges.  

While you might not be able to put aside an exact amount each month or quarter, aim to have a steady saving account for your home deposit and upfront purchasing expenses. That you are disciplined to put something away each pay, no matter what the peaks and troughs are, shows you are working towards your property goals.

As long as you can prove you have profitable cash flow and capital, you’ll have what you need to apply for a loan. The more diligent and organised you are in providing the necessary details, the stronger your loan application will be.

Some things to consider when calculating your income and expenses

  • Are your expenses fixed or varied?
  • Do you have a budget? And if so, how close to your expectations are you each month
  • How much can you borrow before things get tight?

Home loan calculators are all well and good, but you need to know yourself what is a manageable monthly loan repayment and how comfortable you are meeting these expenses, factoring in the changes any changes increased interest rates might bring as well as times when income might be lean or expenses higher than average.

#2. Know where to be flexible and where to stand firm

Before you get serious about looking for properties, write out your non-negotiables and use these as your property search parameters. You want to look to have around five to ten things that are really important for your home and lifestyle - which will need to be jointly agreed on if you are buying a property with another person. Go into the details for why this is important, i.e. you want an ensuite because you’ll be having guests stay often and need the extra privacy and space.

This will provide a broad search range for the property that will suit your desired lifestyle and budget as well as show where you have wiggle room to be flexible.

Don’t waver on your non-negotiables and be willing to be flexible on everything that's not on the list. As part of your parameters, know how much you can afford and what you are willing to spend not just on your property but on initial cost as well. Overstretching your limit to meet your wishlist isn’t going to help your application. You need to be realistic about your financial standing and what property features are available in that price bracket.

Playing with interest rate and loan calculators is a great way to create some leeway around what might happen if interest rates rise so you can stay comfortably within your budget, even as the Australian economy bends and changes.

#3. Make sure your account knows you are applying for a home loan

While you typically want to get the biggest, fattest return possible come tax time, this might not be the best approach when you are applying for a home loan. Getting a big tax deduction can lower your annual income - on paper at least. Talk to your account about what needs to be done with your next financial report to show your income in the most favourable light.

#4. Think of your home purchase as an investment

Yes, this is a personal (and highly emotional) purchase but ultimately it’s a professional investment as well—the same as any other you’ve made in your business, only typically much, much bigger.

Keeping a business mindset is especially important if this is your first home since the buying process is new and can be overwhelming. Make sure you take your time and go at a steady pace. This is not a time to rush into things. Research plan and get some solid footing behind you before you jump in. Looking at properties you have no intention to buy is a great way to get used to the feeling of inspections, asking questions of the agent and even attending auctions. 

Having a wide smorgasbord of properties to choose from can help fight the feeling of urgency. 

There will be plenty of opportunities for another property if this one moves too quickly, the FOMO (fear of missing out) needs to be kept in check.

As a business owner, switch to a business mindset and think about your property as an important business decision.

#5. Build a professional team to support you

If you run your business solo you not only have more on your plate, but you need to be an expert in everything you do. You don’t have time, or the experience to learn the ins and outs of property, so rather than attempt to tackle things yourself, work with professionals who stand out as the best of the best in their field.

While it might make the process seem a bit drawn out, asking for help and advice as far in advance as possible (even six months before you plan to purchase) will really help in your research and planning phase. It also helps these professionals get to know your purchasing goals so they can help you find the perfect match.

You might not choose to engage in all these services but knowing who they are and how they can support you means you know what you are saying no to.

Experts that can help your property search and purchase include:

  • Financial Advisor
  • Mortgage broker
  • Loan manager
  • Real estate agent
  • Buying agent
  • Conveyancer
  • Building Inspector
  • Pest inspector

Ask questions, get their advice, pay for their services and factor their opinion into your buying decision. Even though you are starting the process early, it’s important to stay patient and think about the long term goals.

Bringing in the right help early can make a real difference not just to your mindset for your property purchase but also to get a better quality of advice from professional and experienced agents throughout your property journey. Have a financial advisor look over your financial records to help you shape a healthy application and even assist with filling in paperwork.

Getting started early with your conveyancer is also an unimportant step to take so that any problems with the sale contract or mismatches with your purchasing goals can be addressed before you sign the dotted line.

Who is Peta Stewart?

Award-winning conveyancer. Entrepreneur. Business mentor. Women’s cycling advocate. These are just some of the ways Peta Stewart is introduced. What ties them together is a steely determination to help people achieve their life goals and have fun in the process.

In 2004, Peta became the first licensed conveyancer in the Albury Wodonga greater region. Five years later, she launched her own business and started shaking up the industry with a good dose of personality, integrity and humanity.

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