Home loan tips when you’re self-employed

What you'll learn

 

• Build a relationship with your lender or broker
• Surround yourself with experts at tax time
• Build a solid deposit
• Smart money moves
• Get your documents together

 

Self-employed people can apply for the same home loans as those who work for someone else – the only difference is that you may need to provide more detail around your financial situation. Given that, there are ways you can make your journey to homeownership as seamless as possible. With a clear goal in sight and the right plans in place, saving and applying for a home loan is definitely achievable – even while you’re running your own business. Here are five tips that will help you best prepare for the home loan process as a business owner.

 

Build a relationship with your lender or broker

Applying for a home loan when you’re self-employed may involve more documentation than a standard home loan application. There are different requirements, documents and nuances to cover. That’s why it’s really important to reach out to your bank or broker early in the piece and start to build a relationship. Your lender or broker will take the time to understand your personal situation and provide guidance on the application process.

 

As part of these discussions, you should aim to give your lender or broker an understanding of how your business is tracking – especially things like cash flow or large variations in your income or financial statements. This will help give context and background information that may be beneficial to your loan application.

 

Surround yourself with experts at tax time

If you use an accountant or tax professional to do you tax returns, tax minimisation for business owners is a common strategy. If this is the case for you, your taxable income may appear lower, and it may affect your loan amount or approval. It’s a good idea to chat to your accountant and make them aware of your intention to purchase a home in the next 24 months or so, given that you may need to provide 2 years of business financials. You may potentially the need to maximise your income for your home loan application.

 

Another tip is to explore tax deductions for business-related expenses that you may be able to claim. These deductions can potentially help boost your home loan deposit savings. For a full list of deductions you can claim, check out the ATO website or have a chat with a qualified tax professional or your accountant.

 

Build a solid deposit

As with all home loans, your deposit is an important first step. The amount of money you have saved up for the deposit may have an impact on your home loan application being approved. In most cases, lenders prefer applicants to save a 20% deposit. This means that your loan-to-value ratio (LVR) is lower and shows that you're in a good position as a borrower.

 

There are a few ways to boost your savings to help get into your home sooner. You could look at things like:

 

• Set your home deposit savings goal and track your progress in the Westpac app. 
• Review your spending (personal and business), identify areas you can cut back on and put those funds into your savings account.
• Try to put away as much as possible during prosperous times, but also commit to saving (even a small amount) during quieter times, you’ll find yourself in a good rhythm and these savings will start to add up. Consistency is key.

 

Cash flow can be a challenge when you’re self-employed – and making regular savings contributions during quieter times can sometimes be hard. But we also know that when you’re self-employed, you can control what you pay yourself and when. As a bank, we take the whole picture into consideration when looking at your financials – it matters less if your income isn’t as regular as a person who works for someone else.

 

A good tactic is to commit to a minimum savings amount each month. For example, you might choose to put 20% of your income in your house fund each month – no matter what. And if you have a particularly good month, you can add these funds to your savings as well – bonus savings! This way, you’re always working towards your goal and you’re getting there one step at a time.

 

In some cases, it is possible to get a home loan without having saved a 20% deposit through things like a family guarantee or lenders mortgage insurance. It’s a good idea to check with your local Home Finance Manager to see if this might be an option for you.

 

Smart money moves

If you’re self-employed and applying for a home loan, it’s really important to have a clear picture of your financial situation and try to make decisions around money that will benefit you in the long run. There are a few ways you can do this.

 

If you have debt that you can pay down – such as personal loans or credit cards – it’s a good idea to work towards closing those accounts as soon as possible. Being debt free has a few benefits that will make a difference to your chances of being approved for a loan. Not only will it boost your credit score (something lenders like to see), but less debt means more money to put towards your deposit and a potential increase in your borrowing power.

 

In addition to an emergency fund, income protection insurance is something every self-employed person should consider. If you can’t work because of injury or illness and have don’t have money coming in, you’re likely to dip into your house savings. Income protection insurance means that if something unexpected happens, you’ll be covered for lost income and your hard-earned savings will be safe.

 

Get your documents together

When you’re self-employed and apply for a home loan, the documents you need to provide are quite different to those needed for salary-earners. This is why it’s really important to get in the habit of keeping good records. Not having the right documentation could make things a bit tricky when it comes to applying for a loan.

 

As part of the home loan application process, you’ll need to demonstrate evidence of your business’ financial position. If you’re already with Westpac, you can make this simpler by choosing our Fast Track application process – this only requires you to present your ATO notice of assessment for the last two years.

 

If you opt not to use a service like Fast Track, you’ll need to show a broader range of documents outlining your finances, such as the following:

 

Sole traders:

 

• Personal tax returns, supported by each year’s ATO notice of assessments.

 

Business partnerships, companies and trusts:

 

• Personal tax returns, supported by each year’s ATO notice of assessment 
• Partnership/company/trust tax returns 
• Financial statements (including profit and loss accounts, and balance sheets) 

 

Depending on your situation, there are ways you can speed up the application process. At Westpac, we have a simplified process known as the Fast Track Assessment Process. Fast Track gives you a way to apply for a home loan using only your last 2 years of personal notices of assessment from the ATO, rather than your business financials. Chat to your Home Finance Manager to see if this might be an option for you. 

 

Ready to apply?

We understand that applying for a home loan as a business owner can seem overwhelming – but it doesn’t have to be. We’re here to help, every step of the way. For more information on how you can get into your home sooner, call us on 132 558 or visit a branch to chat to your local Home Finance Manager.