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.

I love helping self-employed people buy properties and know which lenders tend to be small business-friendly.