In Australia, self-employment is on the rise as more individuals seek the freedom and flexibility that comes with being their own boss. With around 2.2 million people in the country running their own show (and growing), the desire to run your own business is not slowing down anytime soon.

However, when it comes to borrowing for significant financial endeavours like buying a home, self-employed individuals have often faced unique challenges compared to traditional employees. In this guide, we’ll explore the key considerations and tips for self-employed borrowers to help you navigate the mortgage application process seamlessly.

Understanding Self-Employed Borrowing –

Self-Employed borrowers are those who don’t receive a regular pay check from an employer. They may operate as sole traders, freelancers, business owners, contractors, or directors. Lenders in the past have typically viewed them as higher-risk borrowers due to variable income and less predictable financial stability. However, with the right steps in place you can mitigate this risk to put you in the best position possible.

Financial Organisation

Before applying for a mortgage, ensure your financial house in order.

• Separate Personal and Business Finances – Maintain distinct bank accounts and financial records for your personal and business expenses.
  
• Keep accurate records – Consistently track your income and expenses, ideally for at least two years, to demonstrate your earning potential.

Now, not every business will have two years of running records. If you are a new business, it is still important to maintain as clean of a record as possible, as there are policies out there that can still facilitate to your scenario.  

Build a Strong Credit File

Your history plays a significant role in mortgage approval, and what type of offer the bank is willing to give you.

• Pay Bills on Time – Maintain a history of on-time-bill payments to improve your credit score and show your ability to adhere to your financial obligations.

Stable Income

If lenders see a consistent income coming into your account – they will look at you much more favourably.

• Demonstrate consistent or growing income over the past two years. Be prepared to provide tax returns, profit and loss statements and bank statements as evidence.
  
• Reduce debt – Lowering personal and business debt can positively impact your borrowing capacity.

As of recent, certain lenders are beginning to assess self-employed borrowers with much more leniency if they can provide 6 months of consistent salary credits being deposited into your account. This is a great policy as it shows the bank you have been able to demonstrate a consistent pay cycle. This is something to keep in mind if you are planning to borrow money in the near future.

Seek a Mortgage Broker –

As a self-employed individual, you typically have enough to worry about with the day-to-day operations of running your business. By engaging a knowledgeable mortgage broker who is familiar with the self-employed landscape, you can mitigate your risk and know that you are getting the best deal possible for your scenario.

Furthermore – they can assist you beyond your home purchasing journey. With access to commercial financing facilities, they can help you grow your business through asset and equipment financing, cash flow and further investment opportunities.

Self-Employed and want to take control of your finances and business?

Reach out today –

Sam Giardina | Finance Broker

M: 0422 269 868

E: sam@cliofinancial.com.au

The information in this article is for informational purposes only and not financial advice. Before making any financial decisions or taking any action it is essential to consult with a qualified professional who can assess your specific financial situation.