How to purchase a house when you’re self-employed?
Buying a home can be a daunting experience for anyone let alone if you’re self-employed. With an often-fluctuating income and potentially not having payslips as financial evidence, it can be challenging for business owners to qualify for a home loan.
Each lender also has a different process and assessment criteria, which further adds to the complexity of securing finance as someone self-employed.
Are you feeling overwhelmed yet? Don’t be. These factors don’t mean that you can’t get a home loan. But you do need to plan and be strategic. The process of applying for a loan is relatively the same regardless of whether you are self-employed. The structure may be more involved but as long as you understand your personal cash flow, you don’t need to worry about anything else. Your broker and accountant can work together to help you at every step along the way.
We’ve outlined our top tips for business owners looking to get into the property market with a self employed home loan.
Lender assessment for self employed home loan
Typically, if you are self-employed, you need to demonstrate that you’ve had either an ABN or ACN for two years, as well as being registered for GST for 12 months. You will need to show your financials for the past 12 months, potentially longer.
We recommend anyone who is considering purchasing property see a mortgage broker in advance. For PAYG individuals, six months is often enough time, for self-employed individuals, we recommend meeting with a mortgage broker at least 12 months out from when you are considering purchasing a home. Meeting in advance will provide your broker with enough time to assess your situation and provide helpful guidance along the way. Here, your broker will have the opportunity to work around any other potential barriers – for instance, if you’ve been in business for a short time and don’t have access to 1-2 years of financials.
Understand your corporate structure
A lot of small business owners don’t understand their corporate structure. In Australia, there are four main business ownership types:
- Sole trader
Your structure can play a significant role in accessing finance, particularly if you’re one of many business owners or are part of a trust.
If you don’t understand your structure, we recommend speaking with your accountant.
You may need to consider changing your tax strategy while applying for finance. Sole traders and small business owners often write-off as many expenses as they can throughout the year to reduce their taxable income. When it comes to qualifying for finance, this can be a problem as lenders will assess your taxable income which you’ve actively worked to reduce. This tactic can Inhibit your ability to get access to a loan as it is not an accurate representation of your earnings. It’s worth reviewing how you can maximise your taxable income; a lender needs to understand how you make a living.
When it comes to buying a home when you’re self-employed if may feel daunting however we believe at Inovayt that it truly shouldn’t. Not all mortgage brokers are the same, which is why it’s important to speak with a mortgage broker that specialises in self-employed home loans to ensure you have the greatest success of loan approval. If you’re ready to talk to a Mortgage Broker, you can book a free meeting with one of our helpful team. We are experienced in working with individuals with all forms of self-employment structures.